Friday, May 21, 2010

It’s time to clear the asset recast logjam


SOURCE :19 May 2010, 0017 hrs IST,Rajiv Ranjan,ET

Our asset reconstruction structure is unique; no other country operates a model of tightly regulated private sector companies engaged in the business of unlocking value from non-performing assets (NPAs) like we do. Why such a denouement for a unique dispensation like ours, then?

Because, a flawed implementation of a asset reconstruction company (ARC) model has resulted in the focus being shifted from unlocking value to ‘solving’ banks’ NPA problem. The key issue for ARCs is not the asset base but recovery and the time-frame within which it is made.

The performance on this front is agonising — at the end of six years of operation, the combined recovery of all ARCs works out to 31.9% of the acquisition price paid. Clearly, this points to a systemic logjam that needs to be tackled.

The logjam is on account of legal infirmities, legacy issues and certain bank practices but the more fundamental question that we need to ask is: Is ARC operation unlocking value for the economy the way it can and should? The simple answer to that question is ‘no’.

Garbage disposal cannot be the main role for ARCs, enforcement agents can do that as well, if not better.

The real value from NPAs will get unlocked only if ARCs do two things: one, tackle recalcitrant borrowers (that’s what Sarfaesi, or The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, was supposed to be all about) in order to make good recovery from NPAs that still have value; and two, rehabilitate revivable sick cases. ARCs have not resolved too many cases of the first variety and, as far as the second is concerned, they have not even scratched the surface.

There is confusion galore as two sets of RBI guidelines prescribe two different standards for determining the price at which banks should sell their NPAs — one for sale to ARCs (‘reasonably estimated realisable value’, or current market value – 2003 Guidelines for Sale to ARCs) and another for sale to banks (‘economic valuation of estimated cash flows’, or present value of expected cash realisations in future – 2005 Guidelines for Sale to Banks in Cash).

The 2003 guidelines ignored time value of money perhaps because, at that time, it was expedient to let banks ‘solve’ their provisioning problem by selling their NPAs to ARC at a price higher than warranted against issue of ‘security receipts’ (SRs).

In the absence of ‘fair practices’ guidelines, officials in the PSU banks-dominated banking system view sale of NPAs to ARC as a huge ‘risk’ — fraught with the dangers of a ‘vigilance’ probe. The logjam is complete: an ARC can submit cash bid matching the bank’s ‘reserve price’ only if it is willing to book a loss.

In order to break the logjam, following steps need to be taken:

First and foremost, we must put in place a mechanism so that banks are forced to get rid of their NPAs after a certain holding period — of, say, two years.

Second, Sarfaesi Act must be amended to confer extra powers on ARCs so as to instill responsible behaviour on the part of recalcitrant borrowers.

Third, RBI should issue guidelines covering ‘one-on-one deals between banks & ARCs for OTS and rehabilitation cases’, ‘auction and due diligence process’ (so that a one-sided application of market mechanism is avoided), ‘fair value’ (stipulating that ‘reserve price’ be computed based on: one, valuation of physical assets on ‘strip sale’, rather than ‘going concern’, basis; and two, present value of expected future realisations), inter-se transfer of debt (allowing such transfer for rehabilitation/ revival and debt aggregation purposes), ‘OTS payment by an ARC, on borrower’s behalf, as an investor’, etc.

Finally, the proposed Financial Sector Legislative Reforms Commission should be charged with the responsibility of mediating between ARCs, banks and the regulator in order to reform and reinvent asset reconstruction.

There is a unique opportunity for partnership between PE funds and ARCs, since the former have expertise in handling equity and the latter in handling debt. Investing funds together in a rehabilitation case would make sense because an ARC can also add value as a rehab expert and a debt aggregator with Sarfaesi powers, including the power to takeover management of the borrower’s business.

(The author is the president and CEO of Reliance ARC. Views are personal)

Thursday, May 20, 2010

It's advantage clients in fight over derivatives losses


 
Source :BS :Ranju Sarkar / New Delhi May 20, 2010, 0:32 IST

Court interventions turn the tables on forex derivative losses, as banks push for out-of-court settlements.

The scales are slowly tilting in favour of exporters in their fight with banks on foreign exchange derivatives losses, which triggered a number of court cases in 2008.


If banks had an upper hand initially and forced many exporters to bear the losses, today many of them were willing to bear a bulk of the losses, said sources in the exporter community.

Axis Bank, for instance, recently settled a contract with Nahar Industrial Enterprises at 30 per cent, meaning the bank agreed to bear 70 per cent of the losses.
 
In 2009, YES Bank settled a contract with Sundaram Brake Linings in which it agreed to absorb 60 per cent of the losses.

Axis Bank did not respond to an email from Business Standard. Nahar officials confirmed the settlement, without disclosing details. YES Bank said the figures were incorrect but did not deny the settlement. Sundaram Brake Linings, in its results for the year ended March 2009, said it had settled the contracts with all banks. In two years, it paid Rs 9.48 crore to settle the total loss of Rs 109.48 crore it ran up on these contracts. If one goes by these figures, it seems the company had to bear only a tenth of the losses.

This is a big change from 2008, when a few judgements went in favour of banks and companies like Sundaram Multi-Pap or Nitin Spinners had to bear all the losses. So, what has changed?

Orissa HC stepped in

For one, there was an Orissa High Court order on December 24, 2009, wherein it directed a Central Bureau of Investigation (CBI) probe on a public interest suit blaming banks for these losses. More than this order, there was a sequel — the two reports sought by the court from the Reserve Bank of India (RBI) and CBI which confirmed many of the violations the exporters were claiming. ‘‘With this, the civil cases have become stronger. We don’t have to argue the extremely complex cases afresh before district courts to convince the judiciary about violations. Wwe can furnish the two reports, which confirm our allegations,’’ said S Dhananjayan of Tirupur’s Forex Derivatives Consumer Forum.


The HC had asked CBI to probe alleged mis-selling of these products, violation of foreign currency laws and any ‘‘offences of cheating, criminal conspiracy and fraud’’.

‘‘If the allegations are found to be true, CBI would be busting a large financial scam affecting the economy of the country,’’ the court had observed. But, on February 19, banks got an interim stay from the Supreme Court on the HC order.
Earlier, in a report to the high court,  
CBI gathered data from RBI that 11 banks
had unrealised dues from customers
to the tune of Rs 755.45 crore between April 2007 and December 2008, 
while the gross mark to market losses 
(by writing down the value of assets to their current value)
for customers of 22 banks were Rs 31,719 crore 
between 2006 and 2008.


Banks had sold exotic derivatives to exporters,
who suffered huge losses when their calls on currencies
went wrong. In 2007, such bets had backfired when the
swiss franc and the yen rose dramatically against the dollar.

After Orissa, more settlements are happening.
‘‘We would keep crying foul about banks and
few would take note. But, when everything
we have been saying is confirmed by RBI and CBI,
we stand vindicated,’’ said Dhananjayan,
a chartered accountant whose business is at stake,
as many Tirupur’s exporters facing closure are his clients.

Bankers’ imperative

On the other side, banks are also under pressure to clean up their balance sheets and provide for the losses on forex derivatives. ‘‘Besides, they realise there’s little chance of them winning the civil cases,’’ said Dhananjayan.

No wonder, banks are increasingly pushing for out-of court settlements (see table). They have already settled many high-profile cases.

Some exporters in Tirupur, who paid a substantial amount to settle the contracts, sense an opportunity. ‘‘They realise that it was not worth paying and are trying to recover their money by filing recovery suits,’’ said an exporter.

Besides the Orissa HC ordering a CBI probe, another milestone in exporters’ battle was the Supreme Court judgement on June 29, 2009, in the case titled Nahar Industrial Enterprises vs HSBC Bank.

The court said the challenges go into the very legality of the contract, and hence, these cases have to be tried in the civil courts, and not in debt recovery tribunals (DRTs).

What this means is that all forex derivative cases will have to be tried in civil courts and not DRTs. ‘‘These tribunals (DRTs) are mainly recovery agents of banks; there’s very little scope of getting a fair trial,’’ said an exporter.

In fact, cases (on forex derivatives) in various courts have never been argued, except in Rajshree Sugars. In every case, banks take up the jurisdiction point.

They have been arguing that every dispute should go to the Mumbai DRT, given the Isda Agreement and the terms of the contract. Isda, the International Swaps Dealer Association, represents participants in the derivatives industry.

However, the Nahar judgement ensured banks could no longer seek to transfer suits to the Mumbai DRT; this was quashed by the SC judgement. ‘‘The DRT mechanism is very simple. Banks would take a recovery certificate from the tribunal and recover the money/assets, just like they would recover other loans,’’ said an exporter. It also meant this fast-track mechanism was closed for banks and they had go through a real probe in civil courts.


Exporters grab advantage


And so, banks have been pushing for out-of-court settlements,
while exporters have been keen to pursue cases in civil courts.
This could simply be a pressure tactic to force banks
to settle the contracts on favourable terms to exporters.

For now, the strategy seems to be working.

But, exporters are equally to blame.
They all made money on these contracts the year before losses
threatened to edge them out of business.

They don’t deny this. 

What they contend is that the losses were highly disproportionate to the profits they made.
For instance, as cited in the Orissa HC judgement, a company which made
a profit of Rs 4 lakh on a contract the previous year made a loss of Rs 2.39 crore
on the same contract in 2008.

‘‘These were highly one-sided contracts.
Banks have speculated on behalf of exporters.
When losses came, they were booked on exporters,’’ said Dhananjayan.



.............................................................................................


FOREX DERIVATIVES: A CHRONOLOGY
 

I  .   MARCH-JUNE 2008

* Banks, exporters discover they are sitting on huge mark-to-market (MTM) losses on forex derivatives contracts due to adverse currency movements

* Many companies had bet on currency markets to make a quick buck. In 2007, such bets had backfired when the swiss franc and the yen rose dramatically against the dollar

* Many companies like Ranbaxy, Amtek start booking MTM losses. It became clear that forex losses would drag down corporate performance for subsequent quarters

* It became apparent that these were not just currency swaps but banks had sold more exotic and complex structures to companies, few of whom understood these trades

* In some cases, the MTM losses on forex derivatives were higher than a company's net profit in the previous year or their net worth, which threatened their existence

* Many smaller companies took banks to court, alleging they mis-sold these exotic products and sought refuge in litigation. Banks also sued many exporters

* Interestingly, many companies made profits on these derivatives the year before bets went wrong. Companies argued losses are several times higher than profits

II .  SEPTEMBER-DECEMBER 2008

* On Sep 15, the Bombay High Court asked Sundaram Multi-Pap to pay ICICI Bank Rs 2.94 crore as dues on derivatives contracts with the bank that it had failed to honour

* On Oct 15, the Madras High Court ruled in favour of Axis Bank, terming its contract with Rajshree Sugars legal. Review petition is pending before the division bench

* The disputes have not been argued, except in Rajshree Sugars' case. Banks harped on jurisdiction and sought to transfer the civil suits to Mumbai DRT
 
III  .  MAY-DECEMBER 2009

* On May 19, 2009, Cuttack-based lawyer Pravanjan Patra files a public interest suit in the Orissa High Court, seeking a CBI probe into forex derivatives losses

* In a significant judgement on June 29, 2009, in a case between Nahar Industrial and HSBC, the SC said derivatives cases have to be tried in civil courts, not in a DRT

* Orissa HC seeks a report from CBI, which finds that 11 banks had unrealised dues to the tune of Rs 755.45 crore between April 2007 and December 2008

* Of this, Rs 329.53 crore is under litigation; banks have written off Rs 203.79 crore. Gross MTM losses on these contracts between 2006 and 2008 were Rs 31,719 crore

* The SC judgement in the Nahar Case and reports by CBI, RBI in the Orissa HC, confirm malpractices and violations in forex derivatives; puts banks on the defensive

* Banks push for out-of-court settlements and are today willing to absorb a majority of the losses, unlike 2008, when they were forcing exporters to bear the bulk of the losses
..................................................................................................

WHAT COURTS RULED
Company Bank Court Verdict
Sundaram Multi Pap Ltd ICICI Bank Bombay High Court Co. lost case on a winding up petition, had to 
Rajshree Sugars and Chemicals Axis Bank Madras High Court Lost a case in front of a single judge. Its review petition pending in front of the division bench
Sundaram Brake Linings Kotak Mahindra Bank Madras High Court Out of court settlement
Sabare International ICICI Bank Karur District Court Cases still pending
Precot Meridian  Kotak Mahindra Coimbatore District Court Out of court settlement
Garg Acrylite ICICI Bank Haryana District Court Cases still pending
Nahar Industrial
Enterprises
HSBC Bank Supreme Court The SC disallowed the DRT to hear or pass any rulings on the forex derviative related cases
Sundaram Brake Linings  Yes Bank Madras High Court Out of court settlement
NCS Sugars Ltd  ICICI Bank Hyderabad High Court Out of court settlement
Nuzhiveedu Seeds ICICI Bank Bombay High Court Out of court settlement
This is not an exhaustive list. Several cases were filed across district courts in the country.

Tuesday, May 18, 2010

SBI seeks more time for higher NPA provisioning



 

 Source ; PTI :May 16,2010
 
New Delhi,  Stung by a severe fall in its Q4 net profit due to higher provisioning for bad loans, the country's largest lender State Bank has sought more time from the Reserve Bank to meet the new requirement of setting aside funds to the tune of 70 per cent of the bad loans.

The SBI request assumes importance as its profit dropped by a whopping 32 per cent to Rs 1,867 crore in the fourth quarter of 2009-10 even when it raised provisioning only marginally from 56.19 per cent to 59.23 per cent of its total non-performing assets on quarter-on-quarter basis.

SBI's competitor ICICI Bank has already got six months relaxation to meet the new norms beyond the RBI stipulated September 2010.

"The RBI has allowed us time till March 31 next to reach a provisioning coverage ratio of 70 per cent.

Venkateshwara Garments And Exports And Anr. vs Dena Bank on 15/3/2004



Debt Recovery Appellate Tribunal - Mumbai
Equivalent citations: II (2005) BC 224


Bench: P Upasani
Venkateshwara Garments And Exports And Anr. vs Dena Bank on 15/3/2004
ORDER

Pratibha Upasani, J. (Chairperson)

1. This Misc. appeal is filed by the appellants/original defendants being aggrieved by the order dated 4.12.2003 passed by the learned Presiding Officer of the Debts Recovery Tribunal, Nagpur in Interlocutory Application No. 189/2003 in Original Application No. 341/2001. By the impugned order, the learned Presiding Officer rejected the application made the appellants, wherein they had sought directions from the Tribunal to the applicant Bank to take possession of the hypothecated goods lying at M/s. Shivan Enterprises, Gangapur Road, Nagpur and to sell the same and adjust the sale proceeds thereof towards the loan account of defendant No. 1 namely M/s. Venkateshwara Garments and Exports.

2. Few facts, which are required to be staled are as follows:
The respondent No. 1 Bank namely Dena Bank had filed the original application No. 1296/2000 against the defendant/appellants herein in the Debts Recovery Tribunal, Mumbai for recovery of Rs. 17,18,552-75 paise with costs and future interest. Thereafter, in view of the establishment of Debts Recovery Tribunal at Nagpur, the case was transferred there and was renumbered as Original Application No. 341/2001. During the pendency of the original application and when the case was posted for final hearing, the defendants came up with an application with the story that the defendant No. 1 had stated the business of manufacturing shirts along with son, by name Mr. Siddharth Patel, of Mr. Deepak Patel, who was the Chief Manager of the applicant Bank at the relevant time. As per the narration in the story of the appellants, it was decided that the defendant No. 1 would be proprietary concern and Mrs. Rashmi Ajay Jainarayan would be the proprietress. According to this story of the appellants, Mr. Siddharath Patel was to help Mrs. Rashmi A. Jainarayan in the business and for that purpose, the then Chief Manager Mr. Deepak Patel had sanctioned the loan in question and that there was clear understanding that the amount would be repaid by defendant No. 1 and Mr. Siddharth Patel jointly.

The appellants have further narrated that after disbursement of loan to the tune of Rs. 3,25 lacs as term loan and Rs. 4 lacs as cash credit hypothecation limit, defendant No. 1 and Mr. Siddharth Patel had purchased machineries worth of Rs. 2 lacs and after setting up the unit, the unit was started in the name of M/s. Venkateshwara Garments and Exports. It is further averred that six to seven months thereafter, dispute arose between the defendant No. 1 and Mr. Siddharath Patel and ultimately it was decided that the defendant No. 1 alone would run the business through the proprietress Mrs. Rashmi A. Jainarayan. The story goes still further and it is averred that in the month of September, 1996, the defendants had been out of station and that taking advantage of their absence, the then Chief Manager of the applicant Bank Mr. Deepak Patel and his son Mr. Siddharth Patel visited the business premises of defendant No. 1 along with a truck and removed all the machineries and other equipments and also carried away stock worth of Rs. 1.50 lacs. As per the appellants' version, the defendants came to know about the removal of the machineries by Mr. Deepak Patel and Mr. Siddharth Patel after they came back to Nagpur. They then immediately contacted Mr. Deepak Patel and protested while Mr. Deepak Patel allegedly told them that there was no alternative but to attach and sell all the machineries for liquidating the account as the same had become irregular. In December, 1996, as per the version of the appellants, they came to know that Mr. Deepak Patel had not sold the machinery and liquidated the account or had deposited the amount from the sale proceeds, but had shifted the machineries to Nasik and had started business in the name of his son by name M/s. Shivam Enterprises, Gangapur Road, Nasik. The defendants wrote various letters and protested and also informed the applicant Bank, but there was no response. According to this story, prayer is made by the defendants that all the hypothecated goods, which were lying in the custody and possession of Mr. Deepak Patel and which were lying at Nasik, should be attached and sold and sale proceeds be directed to be deposited in the loan account of defendant No. 1.
3. The applicant Bank filed reply to the said application made by the defendants stating that the loan was sanctioned to the defendant No. 1 M/s. Venkateshwara Garments and Exports through its proprietress Mrs. Rashmi Ajay Jainarayan and the operations of the account were done by said Mrs. Rashmi A. Jainarayan. It was vehemently denied by the Bank that the defendant No. 1 and Mr. Siddharth Patel had jointly purchased the machinery of the said concern. It was protested that for the first time, the defendant No. 1 had taken the shelter of the name of Mr. Siddharth Patel, son of Mr. Deepak Patel, the then Chief Manager of the applicant Bank. Grievance was made that false allegations contrary to the loan documents executed and signed by the defendant No. 1 were made by the defendants. It was stated that, it was learnt by them that the defendant No. 1 was responsible for the removal of machinery of defendant No. 1 firm only, to save themselves from the clutches of the loan taken by them from the applicant Bank. According to the Bank's reply, the defendant No. 1 was in collusion with defendant No. 2 and sold the machineries and hypothecated goods without knowledge and consent of the applicant Bank and the machinery was not found at the premises of defendant No. 1 firm when Bank officials visited the said premises. Submitting this, it was prayed that the application made by the defendants be dismissed.


4. The learned Presiding Officer after hearing both the sides and after perusing the records, found out that all the loan documents were executed by the defendant Nos. 1 and 2 in favour of the applicant Bank, that the statement of account also reveals that the defendant No. 1 firm had utilized the loan amount for its business and that defendant No. 2 had also created equitable mortgage in respect of the agricultural land situated at Gondkhari, Tahsil Kalmeshwar, District Nagpur. The record also reveals that on 10.10.1995, the proprietress Mrs. Rashmi A. Jainarayan of the defendant No. 1 firm had also addressed a letter to the Chief Manager of the applicant Bank requesting for sanction of temporary ad hoc limit up to Rs. 4.6 lacs and that in the said letter there was no whisper that entire loan amount was utilized by the son of Mr. Deepak Patel, the then Chief Manager of the applicant Bank and that for the first time, the defendant had come up with this version.
The learned Presiding Officer therefore colluded that neither Mr. Deepak Patel nor his son Mr. Siddharth Patel were borrowers or guarantors for the loan advanced to the defendant No. 1 and that they were no way connected with the loan transactions between the applicant Bank and the defendant No. 1, the learned Presiding Officer observed that Mr. Deepak Patel or his son Mr. Siddharth Patel were third parties to the present proceedings and no order could be passed against them. He further observed that possibility of collusion of the defendants with intention to evade the loan amount could not be ruled out. Observing this, the learned Presiding Officer rejected the said application branding it as 'frivolous' and saddled the defendants with exemplary costs of Rs. 10,000/- payable by the defendants to the applicant Bank by way of demand draft on or before 18.12.2003, failing which interim recovery certificate was to be issued in favour of the applicant Bank for recovery of exemplary costs.


5. I have heard Mr. Khandwe for the appellants and Mr. Rama Rao for the respondent Bank. I have also gone through the proceedings including the impugned order and I find nothing wrong in the observations/conclusions arrived at by the learned Presiding Officer. Indeed the whole drama appears to have been staged by the appellants themselves. The security documents indeed revealed that loan was availed by the defendant No. 1 firm only through its proprietress. The said Mr. Deepak Patel and his son Mr. Siddharth Patel are not party to the proceedings. If the appellants' complaint had any genuineness about it, they would have filed complaint in the police, but that also has not been done. It is stated by the appellants that after removal of the machineries, they immediately contacted Mr. Deepak Patel and protested. However, all these protests appear to have mere orally made. Nothing has been produced by way of any documentary evidence. Moreover, the said incident allegedly look place in the month of December, 1996 and the appellants thought of making this sort of application No. 189/2003 only after a period of seven years. This is absolutely unbelievable and smacks of indeed a collusion between the defendant No. 1 and defendant No. 2. I do not find anything wrong with the observations made by the learned Presiding Officer that the entire story appears to have been stated only with the intention to evade the loan amount. This is a most frivolous application.

There is no substance in this appeal, which deserves to be dismissed. Hence, following order is passed.
ORDER
Misc. Appeal No. 34/2004 is dismissed in limine.

Monday, May 17, 2010

The Hammer is yet to go down for Calico Mills



Source:Tejas Mehta Law et al. News Network
 
 
The Gujarat High Court on Thursday cancelled the auction of Ahmedabad’s famous landmark Calico Mill and directed the Official Liquidator (OL) to conduct the auction again after fixing the upset price. The public auction of plant, machinery and land of Ahmedabad Manufacturing & Calico Printing Mills Company Ltd was held last month by the OL. In the auction Mumbai-based Ajmera group and Ahmedabad based Bakeri group bided the highest amount at Rs 211 crore against the upset price of Rs 203.46. There were four other bidders in the race. The seemingly low valuation of the large piece of prime land situate in the middle of the city resulted into allegations of real estate groups forming a syndicate which ultimately kept the value low at the auction.

The allegation was levelled on basis of the fact that the OL opened the auction at Rs 10 crore higher than the upset price i.e. at Rs 213 crore, but the bidding did not cross Rs 207 crore. In the second round of bidding called by the OL during auction, the highest price bidded by the two groups jointly was Rs 211 crore.

The second bidder requested the high court to give directions to return their Rs 20 crore deposit. The high court sought for the OL’s report, in which it is learnt to have expressed the view that the bidding was not up to the expectation. There was also a proposal during the hearing on Wednesday that the land can be divided into five parts so that maximum price could be fetched from different bidders.

After the hearing, Justice MR Shah rejected the OL’s report of the auction and cancelled the auction that took place last month. The high court has directed that the auction be conducted again by deciding the upset price once again.

Calico was established by Sheth Karamchand Premchand in 1880. Later, Ambalal Sarabhai developed the unit as one of the most modern and extensively diversified pacesetters in the Indian cotton industry. It was the first Indian textile mill to manufacture cotton sewing thread and later 100 percent synthetic sewing thread.

Banks urged to make rescheduling recovery of loans from sick units a continuous process




The AP Incipient Sick SSI Federation has suggested to the State Govt to constitute a team to study the implementation of the policy in TN, for rehabilitation of sick SSI units.

Source: BS :Amit Mitra,Hyderabad, May 16,2010

The State Level Bankers Committee (SLBC) of Andhra Pradesh has suggested that banks should make the rescheduling of recovery of loans from sick industries a continuous process, instead of the present system of only once, in a bid to further boost recovery efforts of sick units in the State.

Public money
This, the committee felt, should be done based on current exigencies and unforeseen circumstances, as “otherwise the public money used by the industry will remain blocked without any tangible return.”
This issue was part of the agenda at the recent SLBC meet, that was discussed at length.

“The issue will once again be taken up the SLBC's steering committee meeting that is scheduled in the next couple of weeks. After that it will be conveyed to all the banks in the State,” a senior official of the committee told Business Line.

State policy

The AP Incipient Sick SSI Federation has suggested that the State Government, while preparing the state policy for industrial production, could constitute an experts team to study the implementation of the policy in Tamil Nadu, exclusively for rehabilitation of sick SSI units.

It also pointed out that rehabilitation of sick SSI units in Andhra Pradesh is “being neglected though rehabilitation fund of Rs 20 crore is kept with APSFC, which is not utilised so far.”

The SLBC also suggested that the stipulated power cut period in a month for the industrial sector may be treated by banks as interest holiday to the MSME sector, both for term loan and working capital. Industrial units in the State had been till recently facing 13-day power cuts in a month, which has, however, now been lifted.

Working capital

It further suggested that banks should provide ad hoc credit facility to MSMEs to meet the working capital limit needs in order to make up the shortfalls that arise out of power shortage and delayed payments from customers.

As per the latest SLBC data, the total outstanding credit to the MSME sector in the State is about Rs 28,143 crore, including Rs 15,525 crore for small enterprises and Rs 7,363 crore for micro units.

Credit guarantee

Last fiscal, the total guarantee approved under the Credit Guarantee Fund Trust for micro and small enterprises in the State increased to Rs 225.03 crore from Rs 80 crore in the previous fiscal, reflecting an increase of 181 per cent.

Source:2: : :http://bankfinanceindia.blogspot.com/