Plan for micro level support
Irrespective of the debate on recent demonetization, it is true that high volume of money entered in to the banking system. many people ,who so long preferred to stay away from banking system, are constrained to avail banking services. There is a tremendous transformation in the use digital devices , which is likely to lead in to more transparent financial transaction. Such large inflow would have a downward impact on the rate of interest and most of the banks will adjust their deposit as well as lending rates to become competitive in the market.
low rate of interest is likely to attract entrepreneurs to avail credit from the banking system for utilization in their business. The recent transformation into technology based financial transactions would result in a shift in the business pattern and generation of alternate business avenues. The demand for credit for catering to the business growth at this particular juncture should be responded with efficiency so that the country can gain out of the transformation and the resources generated are optimally utilized for growth and development of the nation.
Global slow down , cyclical effects on mining & steel, stunted growth in infrastructure and exhibition of those defaults as non performing assets vitiated the lending environment. As a sequel to the clamp down on banks to ascertain the deficiency in the decision making process, appraising officials came under scanner, which has created an apprehension of accountability. There were a parallel growth of consultants who were engaged in exploring various ways of evading the norms and lessen the burden of debt of defaulters. In such a backdrop genuine entrepreneurial en-devours are not likely to be responded positively. The situation calls for intervention at the micro level.
Beginning of the current century experienced surge in manufacturing business with steel manufacturing being the leader in the process. Golden quadrangle and government focus on infrastructure gave a boost to the industrial climate. Entrepreneurs with ability to cater to the growing requirement immensely gained in the process and banking sector was also liberal in offering credit to these segments. The enthusiasm lasted for a decade and post 2008 the demand for steel started coming down giving a blow to the health of the banking sector.
Although small and medium segments were benefited by the business growth, very often the growth was in size , but not on the quality of the enterprise. Those entrepreneurs with technical expertise could deliver goods , but there were deficiency in financial planning and manpower management. As a consequence there were non compliance , which involved costs , but the entrepreneurs remained indifferent towards these aberrations. At the most depended on some professionals who primarily offered them short term solutions.
On one Occasion, I came across one entrepreneur who was a regular visitor to the bank and spent considerable time in the bank. The person was paying penalty for non compliance to the bank which came close to Rs. 1 cr p.a. When I asked him the reason for spending so much time in the bank, his reply was that it is very important to understand every transaction in the bank. I said while you are paying so much of money as penal interest for non compliance, your spending so much of time in the bank is not contributing to your earning. Who is looking after your business. Incidentally he brought his daughter who has recently joined the business. In course of conversation she informed that the limit is always full and she has a difficulty in complying with the bank norm for servicing of interest on a regular basis. It was also revealed that there are many payments due which the company is not in a position to recover. I told them that better engage a C.A to look after the financials matters including bank relations and invest your time in business and recovery of dues. At the end of the year he reported that his gain was more than a crore in that year although his payment to the full time accountant was only a few lacs. Such situation is very common in SME/Mid Corp segment.
An entrepreneur was very enthusiast in installation of product, marketing , product development etc. He was also attached to hospitality segment and had large number of acquaintances. A true socialite with recourse to most of the celebrities. When I visited his business place I found him shouting at a person in the top of his voice. The person received the firing and left.I found such firing s are repeated every hour. While I was wondering about his management style, his wife confided that our people do not stay for long. While she tries to balance the relationship with the staff members the attrition level was very high. I also found that as owner he is looking after every aspect , i.e finance, HR, marketing etc. I could visualize the future of the project and absence of professionals in personnel and finance had its toll. His hospitality business was closed, his office was sold. Somehow he could manage the project which was operating with low turnover.
Such incidence are common not only in mid corporate , but also sometime in large corporate.One business house engaged in aviation sector was a very big defaulter to their main raw material supplier. Since the business house was single largest user of the supply, they did not restrict the supply. Banks refused to extend further credit to the business house because there was no drawing power and account was restructured. Because of my informal relationship with the director of the company and also out of my own academic interest I had examined the case. I could find out that their strength was not optimally exploited. I made some suggestions, which primarily was rejected by their own officials, since I am not officially engaged by the organisation and they were apprehensive that such methods may not work. However, the director insisted on finding out some solution. Both the organisations (seller & purchaser) agreed to accept my recommendations and finally regulators approval was also granted. The bank which originally refused credit to the organisation, offered huge credit at a very low rate of interest. After one year there were again default. I could find out that although the first part of my recommendation was considered by them , the second part of monitoring was not considered and the problem came up again.
The legal system also comes heavily on the SME/Mid corp segment. Despite of sovereign initiative by creating organisations to support entrepreneurial initiatives, most of such organisations become compliance oriented and fail to offer counselling to these organisations. Their services are also considered by business units whenever such engagement is part of the terms of sanction by banks/ FI. The officials engaged in support services consider themselves as part of the regulator and refrain from extending counselling support to the business houses. The genuine difficulty of an entrepreneur is not appreciated by the banks and even if banks understand the difficulty,they are apprehensive of outcome of any positive decision taken by them. In such situation an independent authority is required to assess the situation and suggest possible remedial measures.
Such counselling service (CS) should not be exclusively government initiative. There should be a joint initiative . Engagement of such CS should be voluntary but their recommendation should be considered by the regulatory authorities. Even if not considered, there should be enough justification for not considering the recommendations of CS. Engagement of such CS would facilitate identification of genuine cause of problem and the banks would be comfortable in considering the suggestions which are given by an independent authority. NITI Aayog is engaged in transforming India and the planning is largely at the macro level,it is imperative that such support at the micro level would boost up economic activities and facilitate creation of a professionally conducive environment.
