The components of this programme encourage MSMEs
and farmers to borrow from the banking system and are fully or partially guaranteed by the government. Actual delivery will rely upon the banking system. Considering the reach and size of the public sector banking system, a good 75-80 per cent of the programme will be executed by public sector banks. Private sector banks will participate perhaps more on business or commercial terms, and will have sound risk management frameworks.
In addition to the MSME loans, there is credit flow to be ensured by banks to non-banking finance companies (NBFCs), housing finance companies and micro finance institutions. Experience suggests that transmission is likely to take very long. Programmes like Mudra Yojana, and those implemented by the Small Industries Development Bank of India and the National Bank for Agriculture and Rural Development have had only a certain order of efficacy. Inherent problems of reaching out to MSMEs, understanding their funding needs, assessing the borrowers, continuous monitoring of accounts, identification of early signs of non-performance by the businesses of borrowers, and sluggish recovery do exist.
And then there is the issue of fear of making decisions, which has taken deep root in our public sector banks. The initial drive on the part of the government to investigate and enquire into lending by bankers has had an impact on them, and perhaps justifiably so. There are some exceptions, of course, and a couple of them have a much better performance record. This is evident from the performance of several government programmes conducted by public sector banks.
Then again, there is the issue of reaching out to the large number of beneficiaries of the stimulus programme. Our public sector banking is characterised by demand-driven banking when it comes to developing loan portfolios. The stimulus programme expects more than four million MSMEs
to be covered. Even where a certain number of MSMEs
have a relationship with the banking system and have established a record of borrowing and repayment, there will be a need for banks to know their borrowers more. Perhaps the government and the RBI may have a mechanism under which NBFCs
could assist the banking system. They are known to have a better reach and knowledge of borrowers in their own geographies.
Lets us look at the other critical aspect of the performance of the stimulus programme. How are we to measure the reach and efficacy of these programmes? Will they reach the targeted beneficiaries? Will there be accountability?
To begin with, there are several programmes within the overall package. Presently, there is no independent mechanism to evaluate the efficacy of the programmes. There are trade bodies and associations of beneficiaries, but they do not have the bandwidth to independently determine the actual execution. Banks will be expected to report the numbers to the RBI, and they will be published periodically, but the veracity and reporting may have flaws. There is a serious need for an independent mechanism to continuously monitor the performance of the programmes and their efficacy, and report this to the nation.
To conclude, the intent is commendable and the programmes are well-designed. Though the government has limited exposure as regards the fiscal outlay, it will be called upon to provide guarantees and capital for public sector banks. The overdependence on the banking system needs to be examined and the system should be strengthened. There is also a need for independently and continuously assessing the implementation and efficacy of the programmes.
The writer is managing partner, Ashvin Parekh Advisory Services LLP.
Views are personal