Budget initiatives fall short

"It is not the hike in the limit that is an issue really, even the existing limit has not been positively exploited by the lenders. What one really needs is machinery that will enforce the recommendations,some mechanism that will ensure that bankers sincerely use the powers that have been given to them," he remarks. Otherwise, Kulkarni warns, the hike in the limit will remain just a source of psychological satisfaction for the SSI units.

To Kulkarni, one solution would be to monitor raising limits. There is a monitoring committee at the district level from which representatives of lead banks and SSI associations could oversee the implementing of approvals in spirit not just on paper.

Secondly, as far as credit rating goes, there is no agency at present for the really small scale or micro units. Instead the banks have been given the freedom to take decisions on the creditworthiness of a unit. "The RBI guidelines are only for high credit facility, and the stipulations on unit turnover or account regulation or credit ratio will benefit only a small number of high value units. Only around five percent of the units have have a limit of Rs 5 crores. Instead most of us are looking at limits of Rs 25lakhs."

Kulkarni rues the fact that although branch managers of banks have been given the right to use their discretion in credit facility of upto Rs 1 crore for the units, they do not exercise this right at all. "They fear that their judgement may be be questioned later and discredited, which prevents a manager from taking a decision even for Rs 10-15 lakh, leave aside a crore."

According to him, even in the Maharashtra State Finance Corporation, a state level institution that gives term loans to SSIs, disbursement has gone down by 50 percent over the last year. "The government needs to instill confidence among the bankers at the grassroots level."

The delinking of Small Industries Development Bank of India (SIDBI) from IDBI is unlikely to help SSIs at all. SIDBI does not lend directly but gives refinance to national banks in respect of advances. "The delink will just give SIDBI more money but the refinance rate and the actual rate charged by banks is virtually equal. There should be some gain tobanks.

" Referring to the issue of delays in payments by big companies to their vendors and ancillaries, Kulkarni contends that, "We cannot fight the large scale industries for fear of losing contracts. Today, commercial banks have been advised to make a note of delay in payment to SSI suppliers but as a banker, I wouldn’t like to displease a large client for a small SSI unit of Rs 20-30 lakh. " The modification in the existing Act is therefore unlikely to be very effective.

Kulkarni feels the real solution lies in small scale industry coming together to tackle late payments by, for instance, refusing to supply material till outstandings are cleared, for the situation to improve.

As for the provisions on excise duty, Kulkarni says it call for a two-way street. "While SSI units are concerned about harrassment by the the excise department, many a SSI unit is inclined to settle disputes through bribery."

Kulkarni finds it "distressing" that the governent not given statistical data on the SSI units: howmany, where, in what condition are they, etc. "It is a fact that 90 percent of theSSI units in terms of their number get only 10 percent of the credit available."

According to him, in Thane district, 40 percent of the SSI units are sick and there is no data available on their status. These units include those run by educated new entrepreneurs. Some of the units are virtually waiting for banker’s notice to down shutters. The number of new units has substantially declined while the sick units have increased.

Although RBI guidelines say that all banks are expected to lend 60 percent of credit deposit ratio and in the districts 40 percent of total loans should be provided to the priority sector, including SSI, agriculture and small businesses, districts and banks are not conforming. Instead, they opt to take the easier route of depositing the shortfall with NABARD or SIDBI where it earns interest at 10 percent and does not have to incur administrative costs either.

Finally, he says, the budget should havetaken a long hard look at the NPAs. While the international norm is 4 percent, it is 20 percent here. "NPAs being dead investment for bankers and SSIs, some steps should have been taken to see if NPAs in one unit could be put to constructive use by another. This would have averted loss and wastage."

Insight — how the proposal aims to help

Budget ’98 has conceded significant importance to the small scale sector units. It is hoped that some of the measures would help in easing liquidity problems faced by the SSIs.

For example, the Reserve Bank of India would take measures to bolster the mechanism of discounting of bills by SSIs. The apex bank would also modify guidelines to commercial banks to take into account the overdue outstandings to SSI suppliers while doing credit appraisal for large units.

Currently, banks determine the working capital limit at 20 per cent of annual turnover for SSIs with working capital requirement of upto Rs 2 crore. This would be hiked to Rs 4 crore. This is aimed ateasing banks’ credit flows to SSIs.

Bank managers of specialised SSI branches would be delegated more powers to ensure that most credit proposals are decided at the branch level.

The enhancement of the exemption limit for excise from Rs 30 lakh to Rs 50 lakh and the flat nominal excise duty of five per cent only on clearances between Rs 50 lakh and Rs 1 crore has been met with a mixed reaction, with some applauding it for an effort to boost SSIs and others wary that it would only support inefficiencies.