“In Corporate Insolvency Resolution Process (CIRP) under IBC, dues owing to MSME suppliers are not given priority in the sequence of settlement of creditors dues”, said Vijay Kalantri, President, All India Association of Industries (AIAI) and Chairman, Worli Industries, addressing an AIAI webinar. “The government should introduce provisions under the Insolvency and Bankruptcy Code (IBC) Act for priority settlement of MSME vendors' dues owed by the insolvent company because banks do not want to extend accommodative treatment to MSME vendors who defaulted due to payment delay from their corporate buyers”, Kalantri stated. He further explained, “It is normal for MSME vendors to fail on their bank loan obligations if their dues are not paid on time.”
In the month of April this year, the government introduced an ordinance under the IBC for a Pre-packaged Insolvency Resolution Process (PPIRP) for MSMEs to act as an alternative insolvency resolution framework for “timely, efficient, and cost-effective resolution of distress MSMEs sector, thereby ensuring positive signal to the debt market, employment preservation, ease of doing business, and preservation of enterprise capital” according to the Ministry of Finance. In terms of the inadequate flow of formal credit to the MSME sector, Kalantri highlighted that commercial bank credit to the sector fell from 12.4% of total credit before to 2008 to 8.3% in the ensuing years. Furthermore, public sector banks fall behind private sector banks in loan disbursement to MSMEs, with the former extending just 5% of its credit to MSMEs compared to 4% for the latter. Kalantri encouraged commercial banks to build specialised SMEs branches across the nation, as well as the conversion of SIDBI into a full-fledged SMEs bank. Bank of Baroda, one of the main public sector lenders, stated that it expects 10% total loan growth in the core SME category in the current fiscal year, compared to 11% growth in the previous year, which was principally supported by the Emergency Credit Guarantee programme (ECLGS). According to a senior bank official, "SMEs may receive in-principle approval for their loan application up to Rs 5 crore by uploading their financial records and other documentation via our mobile app, internet banking, and corporate website. They have implemented automated approval for MSME loans up to Rs 0.25 crores across India, and loans up to Rs 5 crores are in principle sanctioned digitally, with plans to approve and distribute loans digitally soon under the co-lending model.
“NITI Aayog has already enabled Centres of Excellence under its National Strategy on Artificial Intelligence through its various MedTech zones, special technology zones, and via AIRAWAT, which is a concept of shared technology resources to help MSMEs access cutting-edge technologies like 3D printing and artificial intelligence,” said Preeti Syal, Director, NITI Aayog.