Mumbai: A Reserve Bank of India (RBI) panel to look into the problems of micro, small and medium enterprises (MSMEs) has recommended a government-sponsored fund of funds (FoF) of Rs 10,000 crore to support Venture Capitalists or PE firms investing in the MSME sector. Besides, the panel has also recommended setting up a distressed asset fund of Rs 5,000 crore to assist units in clusters where MSME accounts have turned non-performing assets (NPA) due to external factors. The Committee also recommended doubling the limit for collateral-free lending to Rs 20 lakh for lending to MSMEs and self-help groups.
Speaking about FoF, the panel said such a fund will support crowd funding from venture capital and private equity firms focused on MSME investment.
“The Committee recommends for the creation of a Distressed Asset Fund, with a corpus of Rs 5000 crore, structured to assist units in clusters where a change in the external environment, e.g. a ban on plastics or ‘dumping’ has led to a large number of MSMEs becoming NPA. This fund could then operate on the lines of the Textile Upgradation Fund Scheme (TUFS) which has been in existence over many years. This would be of significant size in order to make equity investments that help unlock debt or help revive sick units,” said the report.
The Distressed Asset Fund is a variation of venture capital fund meant for equity investment of Rs 1 lakh to Rs 10 lakh in proprietary or partnership MSMEs which will not or cannot list on stock exchanges. Covenants such as formalisation and digitisation of cash flows can be built in. Such a fund could work in tandem with RBI-mandated restructuring schemes or bank-led NPA revival solutions for MSMEs.
Considering the vulnerability and size of MSMEs, the report said the Insolvency and Bankruptcy Code should provide for out-of-court assistance to MSMEs which are predominantly proprietorships in the form of mediation, debt counselling, financial education, etc.
Other suggestions of the committee include introduction of adjusted priority sector lending (PSL) guidelines for banks to specialise in lending to a specific sector; providing insurance coverage to MSME employees by the government, increasing the number of facilitation councils, particularly in larger states.
The PSBLoansIn59Minu-tes portal, which currently caters only to existing entrepreneurs having information required for in-principle approval such as GSTIN, Income Tax returns, bank statement, etc., should be expanded to cater to new entrepreneurs who may not necessarily have such documents.
In January 2019, the RBI India constituted the Expert Committee on MSMEs to make a comprehensive review of the sector and identify causes and propose long-term solutions....