MSME bodies demand scrapping of SARFAESI Act
Industry bodies representing micro, small and medium enterprises MSMEs in South India demanded scrapping of the Securitisation and Reconstruction of...
Hyderabad: Industry bodies representing micro, small and medium enterprises (MSMEs) in South India demanded scrapping of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, also known as SARFAESI Act, which, they allege, is creating havoc in the MSME sector.
“The central government should withdraw the SARFAESI Act or at least exempt the units up to a borrowing limit of Rs 2 crore as this will help the micro and small industries to survive in the face of grave crises," the industry bodies demanded. The Act allows banks and other financial institution to auction residential or commercial properties of defaulter to recover loans.
Eight industry bodies including Karnataka Small Scale Industries Association (Kassia) and Federation of Small & Medium Enterprises of India (FSME India) met in Bengaluru recently and discussed threadbare the issues and challenges MSME sector is facing in South India. They urged the governments to address them on a war-footing.
FSME India president APK Reddy who took part in the meeting said that banks were resorting to auctioning of MSME units indiscriminately. “Neither governments nor banks are showing interest in reviving sick units. First priority of banks seems to be putting an MSME unit and assets mortgaged for loans on sale. Such steps will scare entrepreneurs and people won’t come forward to establish industries,” Reddy told The Hans India.
Pointing out that complex collateral requirements were making it difficult for entrepreneurs to access credit, he urged the government to simplify the procedure and to do away with the practice of mandatory annual renewal of the loan.
He also blamed high rate of interest on loans for increase in number of sick MSMEs. “MSME, like agriculture, is labour-intensive and generates large number of employment opportunities. To prevent MSME units from turning into NPAs, the central government should take immediate measures to see that banks offer loans to MSME at same interest rate that they offer to farmers,” he explained.
The industry bodies also urged the Centre to drop the proposal of redefining the MSMEs based on turnover and instead retain the current method based on investment. However, investment limits for micro, small and medium units can be enhanced.
They also sought increase in corpus of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) from the existing Rs 7,500 crore to Rs 10,000 crore. “The effective guarantee cover under the scheme also needs to be progressively increased. Currently, it covers a maximum of 62 per cent of the credit limit, giving risk averse banks an alibi for denying credit,” the industry bodies said in a joint plea to the central and state governments. The industry bodies also demanded scrapping of GST on labour works, mandatory procurement for PSUs from MSMEs and single regulatory body for the key sector.
APK Reddy further said that fixed charges on industrial power connections should be scrapped forthwith. “Industrial units are forced to cough up fixed charges whether they consume power or not. This is very bad practice. The government should do away with this,” he said.