UCO Bank - Mega MSME Outreach Programme - Bank Initiatives towards MSME Sector

1. Resurgent India Knowledge Series-20th May 2020 Mega MSME Outreach Programme Bank's Initiatives Towards The MSME Sector Moderated By- Mr Jyoti Prakash Gadia, Resurgent India Limited Speakers- Shri Atul Kumar Goel, Managing Director & CEO-UCO Bank Key Takeaway Contribution of the MSME- Overall Economy 6.24 Cr unit industries are part of this sector with micro having 99.47% concentration in micro, 0.52% in small and remaining in the medium enterprises. Over 11.10 Cr of employment is absorbed by this sector. This contributes to the 50% of the total workforce of the country. 49% of the export of the country & 30% of the GDP composed of this sector. Hence, it is safe to say MSME is the backbone of the economy & the collective dream of India as a 5Tn Economy will be achieved with the simultaneous growth of this sector. It will be the joint responsibility of all the stakeholders- government, regulators, customers, suppliers, bankers, etc- to take part in lifting the sector. UCO Bank has consistently shown support to this sector. There was a positive growth in loan book towards MSME

2. Position of MSME- Pre COVID-19 Although MSME is a tremendous part of the economy, the sector has been struggling in the recent time because of several reasons like competition from large industries & other countries, lack of marketing, infrastructural shortcomings, high cost of production and most importantly, realization from the debtors. The sector was scuffling with 10-15% of NPA. There are two major sources of stress in any sector. Liquidity & Solvency. Banks are trained to address the liquidity crisis. Problems linked to solvency can be technical, structural, managerial, etc. It is addressed in totality and often out of the lender’s hand. RBI, to address the growing concerns of stress in the sector, allowed restructuring scheme of MSME up to 25 Cr from January 2019- for SMA-0,1,2 without downgrading. Initially, the window of 1 year was revised again in February 2020 to another one year. RBI issued guidelines regarding interest rate. It made it mandatory for micro & small to link their rates to external benchmark to reap direct benefit of reduction in repo rate, whenever, by RBI. They later included medium enterprises. Banks do not have the liberty to reduce MCLR rate beyond a certain point, as it is not justifiable to the deposit rates(Senior citizens rely on it ~17 lakh crore is the total debt in MSME & the bank finances ~13 lakh crore. Efforts in the right direction will drive the rest of the finance towards banks. The benefit of competitive interest rates can be given to the sector. Banks need qualified data to lend. Chambers and other commerce associations can help the unorganized players of the MSME to educate them about keeping systematic data- balance sheets, GST returns, etc. RBI also introduced multiple initiatives like PSB-59 & interest subvention of 2% up to March 2020, with a possibility that it will further increase, to aid MSME sector.

3. Position of MSME- Post COVID-19 COVID-19 has completely disrupted the operations of the MSME sector. Ceased production, migrating labor & increasing fixed cost are some identified & immediate issues faced by the sector. RBI & GoI to reduce the stress gave relief packages in the form of- 3 months deferment of principal & interest, for term loan and CC 10% emergency line of credit to existing borrowers Reassessment of working capital & reduce margin to increase DP. UCO bank instantly also corroborated the decision to interchange non-fund based to fund based limit except BG. The banks have also kept the procedural formalities of documentation uncomplicated and short. The verification of the documents will happen afterwards & state government also has waived off stamp duty penalty wherever applicable. Government’s recent stimulus package that focuses on revival of this sector includes 20% automatic loan, subordinate debt for stressed MSMEs & equity infusion through Funds of Funds & redefining of MSMEs will have a major impact on the liquidity TreDs is a successful digital platform that can help MSMEs with their debtor realization and release liquidity. The interest rates are affordable & competitive. These are challenging times, but looking it through with lenses of positivity can help highlight the silver linings in tragedy. The PM’s message of self- reliance and local, vocal, global can help boost the sector & economy. Banks are gearing up to finance all kinds of projects with the increasing discussion of India becoming the manufacturing hub. Liquidity is not an issue. Unfavorable credit rating is inevitable, therefore associations of MSME and other chambers should undertake to bring around the credit agencies to revise their parameters for rating MSMEs. They are using the same parameters as they do for large corporates.

4. Observations MSME, as stated earlier, was in a tightened state. ‘Ease of doing business’ for MSME should be targeted, a three-pronged strategy can be used to help the sector. 1-Optimal utilization of resources- Conserve capital, insure cash flows, product innovation & value creation & customer retention. 2-Unified common platform- The sector and the economy will now have to get used to working digitally and remotely. A unified common platform portal should be developed by the government to bring all the stakeholders at one platform and improve accessibility and quick dissemination of information. 3-New Business- Expanding product lines, adopting digital marketing techniques. Banks can play a significant role in assisting the MSME sector by providing them trade finance, project finance and capital for expansion in this difficult yet opportunistic time. Capital Market can prove essential in globalizing ‘Make in India’ initiative. Website: www.resurgentindia.com Webinar Link: https://bit.ly/2M0KcLR