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FICCI’s budget wishlist for MSMEs: Change in NPA norms, enhancing CGTMSE limit, credit to NBFCs, more

Ease of Doing Business for MSMEs: FICCI also recommended automatic publishing of GST-registered MSMEs’ invoices on invoice discounting platform TReDS.

Ease of Doing Business for MSMEs: Industry body FICCI, in its pre-budget recommendations to the government on Wednesday made multiple suggestions to ease credit-related challenges faced by MSMEs that worsened during the pandemic. The federation asked for a change in classification norms of MSMEs for non-performing assets (NPAs). It suggested an increase in the 90-day limit fixed by the Reserve Bank of India (RBI) for classifying overdue of MSMEs to 180 days to reprieve businesses from the constrain of allocating their working capital towards loan instalments and clearing dues at the cost of their regular business operations. “This improvement in the RBI guidelines will save a large number of MSMEs from turning sick or getting closed resulting in loss of economic activity and employment,” FICCI said. Currently, loans with days past due (DPDs) are treated as NPAs. 

“It is a very fair ask from the government to increase it to 180 days. The entrepreneur doesn’t just go through financial pressure, there is mental and psychological pressure as well that bothers him/her. Once the entity is labelled as NPA then repercussions are even more serious. The current 90-day window isn’t sufficient as the payment cycle for MSMEs is inadequate. On the other hand, once MSME applies for a loan through banks, there remains a lack of clarity on the status of the application. This should be linked to the performance incentives of concerned officials to make the process more transparent,” Harjinder Kaur Talwar, Vice President, FICCI CMSME told Financial Express Online. 

FICCI also urged the government and RBI to fix a threshold limit as per the size of business – micro, small and medium – till which no or minimum percentage of a personal guarantee is asked by banks in giving loans. Personal guarantees act as a barrier to the growth of MSMEs who generally exhaust most of their resources in setting up their business and works on limited budgets and working capital capacity. The industry body also suggested enhancing collateral-free term or working capital loan limit under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) from Rs 2 crore to up to Rs 5 crore irrespective of whether it is a private limited firm, a limited liability partnership, a partnership or a proprietorship. 

“Prices for raw materials have increased tremendously across industries from around 40 per cent to 150 per cent or more. That has put MSMEs into a huge business crisis in terms of passing the cost onto the customer and a substantial increase in working capital requirement. Hence if govt can help MSMEs with some support measures such as increasing the CGTMSE limit from Rs 2 crore to Rs 5 crore, it would be helpful,” Sanjay Bhatia, Managing Director at metal packaging company Hindustan Tin Works told Financial Express Online. 

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As of January 12, 2022, a total of 5,18,520 loans involving Rs 38,072 crore were approved under CGTMSE in the current financial year of which 19,394 were disbursed amounting to Rs 413 crore, data on MSME Dashboard showed. In October last year, Non-banking financial company (NBFC) lenders to MSMEs have sought restoration of guarantee cover under CGTMSE to 75 per cent which was reduced earlier this year to 50 per cent to help them lend more to MSMEs. For NBFCs lending to MSMEs, FICCI asked the government to consider a separate direct line of credit at a prefixed rate having regards to tenor and rating of the borrower to help them raise funds to refinance the maturing debt and manage asset liability management. This was intended to eventually help NBFCs lend more to MSMEs. 

FICCI also recommended automatic publishing of GST-registered MSMEs’ invoices on invoice discounting platform TReDS. “After the delivery of services or goods, within a certain number of days, the corporate must accept or reject the automatically published MSME’s invoice. After that period, the published MSME’s tax invoice should be deemed accepted and should be available for banks to provide funds to MSMEs,” it said. Moreover, the industry also asked for reducing the minimum turnover limit for all businesses to list on TReDS from Rs 500 crore to Rs 250 crore. 

Importantly, Gujarat’s Gift city-based International Financial Services Centres Authority (IFSCA) had last year issued licenses to multiple invoice discounting platforms in India such as KredX, Vayana Network, and TReDS platforms M1xchange, and RXIL to provide international trade financing facility to exporters and importers. Established by the government, IFSCA is a unified authority for the development and regulation of financial products, financial services, and financial institutions in the International Financial Services Centre (IFSC) in India.

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