Take-off in credit to SSIs still unsure

SIDBI deputy general manager MS Radhakrishnan says that if the policies are implemented in letter and spirit it would be highly beneficial to the SSIs. "With this new limit, more than 95 percent of the SSIs will be covered and industry will get timely and adequate credit at a competitive rate," he explains.

But the ‘Ifs’ remain. For the track record of policy implementation and improving systems for delivery of credit is not inspiring. G A Sathe, managing director, Elf Filament Industries Private Limited andchairman of the SSI wing of the Mahratta Chamber of Commerce and Industry, says he is not sure when words would be translated into deeds. "It all depends on how clear-cut are the guidelines given by the RBI and how soon the banks adopt them. It takes at least six to eight months for things to filter down the line."

While industry has taken a wait-and-watch approach the probability of conditions changing are low. Despite lip service about providing finance for SSI sector the flow of credit from commercial banks has been on the decline. The P R Nayak committe had recommended a minimum level of working capital bank finance at 20 percent of the total projected annual turnover but in reality banks do not consider projected turnover. Instead they give finance on the basis of past sales and usually the quantum of credit is much lower than the prescribed limits.

According to a CII study, the Nayak committee recommendations are not being followed across the country and many banks continued with their ownevaluation methods without following the norms set by the committee.

Banks also insist on collateral security and SSIs are often charged a higher rate of interest than the market rates. Concessional credit is available only upto a limit of Rs 2 lakh. From time to time, RBI issues guidelines which are not necessarily followed as they are merely non-binding directives.

Banks have a difficult role in this situation since they have to keep a close watch on company bottomlines and keep NPA down. SSI finance is considered highly risky and there is every indication that risk perceptions are unlikely to change.

Banks are not "overcautious" but they have to be careful as the risk in financing SSIs is greater, says Bank of Maharashtra deputy general manager (credit), VG Sardesai. "There is a lurking fear among banks that many unscrupulous elements are likely to come into avail of the benefits of the new policy."

Echoing similar views, A D Bichu, divisional manager, Canara Bank, says there have been cases whereworking capital has been diverted and misused and hence banks have to lend with care. Bichu avers that his bank has never denied working capital requirements to a company with a good track record.

However, Sardesai is more worried about the ability of the small industry to face competition. "SSI has become vulnerable and elimination is easily possible. Many of them are not in a position to face competition which demands constant upgradation of technology and increased investments.

This is not usually possible as their capital base is small and financial strength low," he adds. Industry captains are not helping either, he points out, in a reference to big corporates who delay payments to vendors and ancillary units which result in the the SSI being caught in a debt loop.

The excessive dependence on banks for working capital credit is because of delayed payments and poor bill culture in the industry.

The budget has addressed this problem and asked the RBI to strengthen the exsting mechanisms availablefor discounting of bills and make it more effective.

But for this to happen the Delayed Payments to Small Scale and Ancillary units Act, 1993 will have to be amended to give it more teeth. In other words, while the changes announced in the budget are welcome it will benefit SSIs only if the overall credit delivery systems improve and there is an attitudinal change among those implementing the new policies.