Webinar on-Financial Management for SMEs
June 16, 2020
Resurgent India Knowledge Series Presents
Webinar on-“Financial Management for SMEs”
Moderated By- Ms. Sonal Mehta, Vice President- Resurgent India Limited
Speakers- Mr. K.K Gupta, Director- Resurgent India Limited
Mr. Ashok Gupta- Vice President- Resurgent India Limited
- SMEs create 100% employment as against 20% investment. While lending to SME, some of the key parameters the bank focuses on are debt/equity ratio, interest coverage ratio, debt service coverage ratio, current ratio sales and projection, and rating of the borrower.
- The estimate of sales figures in projection is an important input and assumption. Assessment by the banker for credit limit depends upon it.
- Loans below Rs 2 cr are covered under the credit guarantee scheme for MSMEs and do not require collateral. The percentage of collateral required is at the discretion of the bank and may depend on the past conduct of the account.
- In order to calculate the MPBF limits of cyclical industries, banks assess it through ‘peak level balance sheets’. It has become a common phenomenon for banks and financial institutions.
Current guidelines for the restructuring of MSME by RBI
- The account will not be downgraded and remain standard under this scheme following the below guidelines.
- The total exposure by the company including fund and non fund based limits from banks and NBFC should not be more than Rs 25 cr. The accounts can be restructured if they are SMA 0-1 category as of that date.
- They should be GST registered. All the MSMEs which are exempted from GST in writing will also be covered under this scheme
- Restructuring should be done before December 2020. The account can continue to remain standard and the MSME unit has to service interest and principal up to the date of implementation. It should not turn into NPA.
TReDS & Revival of SMEs
- The biggest challenge faced by MSME receivables not converting to cash on time, The company can seek the help of the council called the ‘MSME facilitation council’ for settlement of the dispute, which is promoted by the government.
- The borrower can seek help from the banks directly if it is struggling. Bank will set up a committee of experts and evaluate if the situation is temporary and future cash flows are promising and will service the debt, the bank can take a call accordingly and a process called ‘rectification’ has ensued.
- If the situation is more severe then the restructuring of the account is required and a TEV consultant is appointed by the bank.
- TReDS is a receivable exchange where MSME can realize and bridge their working capital gap. It is a platform promoted by SIDBI in association with NSE in order to functionalize timely payment of dues by the large corporate buyers to sellers (M
SMEs) on time. The parties involved are buyers, sellers, and financiers( banks, NBFCs ), etc.
- The platform works both ways. Sellers can ask for financing and buyers can also reach out and ask financiers to discount his accepted bills.
- There is a lack of awareness about the TReDS platform amongst the MSME companies.
Challenges with Restructuring
- Borrowers shy away from approaching banks for any resolution in the fear that operations or payments might get affected. So the branch manager and account holder both should participate together and discuss the way forward before the account slips into NPA.
- There should be transparency between the bank and the borrower. Branch Manager is the first person who can identify sickness in the account on warning signals like the absence of monthly stock statements.
- Earlier even banks were reluctant to report any stress because of a number of reasons like an increase in provisions, etc.
- Although due to the introduction of IBC and classification of the account as SMA 0.1.2, borrowers are coming forward if they are facing stress to seek help from the bankers in fear that it will be passed into NCLT and they may lose the ownership.
- Banks should perform restructuring where there is the eligibility of revival so that it does not lose the economic value of the unit. The account will slip and classified into NPA if not taken care of earlier and recovery will be even more difficult
- The government should come up with some relaxation for the regulations of classification of accounts as NPA for ailing SMEs. They have limited management skills and authorities, banks, etc should put in all efforts for their revival.
- In order to deal with this onset of the crisis, SMEs should concentrate on retaining their workforce and keep them in good spirits. Apart from that maintaining cash flow via increased bank borrowing or realization of debtors.
- Banks should aim to aid existing clients by immediately extending them limits to kick-start operations without any further detailed assessment.
►Watch the webinar here: https://www.youtube.com/watch?v=EJ50LXW4mz8&t=53s