Government should bring provisions under IBC for priority settlement of MSME vendors’ dues, says expert

Kalantri also opined that NITI Aayog should hold stakeholder consultation with MSMEs and their associations before preparing a policy framework for the sector.

Ease of Doing Business for MSMEs: Government should bring provisions under the Insolvency and Bankruptcy Code (IBC) Act for priority settlement of MSME vendors’ dues owed by the insolvent company as banks don’t want to extend accommodative treatment to MSME vendors who defaulted because of payment delay from their corporate buyers, according to Vijay Kalantri, President, All India Association of Industries (AIAI) and Chairman, World Trade Center.

At a webinar organised by AIAI, Kalantri said, “In the insolvency cases under IBC, dues owed to MSME suppliers are not given priority in the order of settlement of creditors’ dues. If MSME vendors do not get their dues settled on time, it is but natural that they will default on their bank loan obligation.” The government in April this year had introduced an ordinance for a pre-packaged insolvency resolution process for MSMEs under the IBC to act as alternative insolvency resolution framework for “timely, efficient & cost-effective resolution of distress thereby ensuring positive signal to debt market, employment preservation, ease of doing business and preservation of enterprise capital,” Ministry of Corporate Affairs had said.

In terms of the poor flow of formal credit to the MSME sector, Kalantri noted that commercial bank credit to the sector has declined from 12.4 per cent of total credit before 2008 to 8.3 per cent in the subsequent period. Further, public sector banks are lagging behind the private sector in credit disbursement to MSMEs as the former extended hardly 5 per cent of their credit to MSMEs compared to 40 per cent by the latter. Kalantri urged commercial banks to open dedicated branches for SMEs across the country and also called for the conversion of SIDBI into a full-fledged bank for SMEs.

Among the prominent public sector lenders Bank of Baroda said that it is expecting 10 per cent overall credit growth in the core SME segment in the current financial year compared to 11 per cent growth seen in the previous year which was primarily backed by the Emergency Credit Guarantee scheme (ECLGS). According to a senior official from the bank, “SMEs can get in-principle sanction for their loan application up to Rs 5 crore by uploading their financial statements and other documents on our mobile app and internet banking and corporate web site…We have introduced automatic approval for MSME loan upto Rs 0.25 crores across India and loans up to Rs 5 crores is in-principally sanctioned digitally and we intend to sanction and disburse digitally loans shortly under the co-lending model.”

Kalantri also opined that NITI Aayog should hold stakeholder consultation with MSMEs and their associations before preparing a policy framework for the sector. “NITI Aayog is working on setting up a Digital Capability Center to transform India’s manufacturing sector in this age of fourth Industrial Revolution. Already, NITI Aayog has enabled, under its National Strategy on Artificial Intelligence, Centers of Excellence through its various MedTech zones, special technology zones, and via AIRAWAT, which is a concept of shared technology resources to facilitate MSMEs access cutting edge technologies such as 3D printing and artificial intelligence,” said Preeti Syal, Director, NITI Aayog.