Bankers must be partners to MSMEs

To mitigate the issue of delayed payments to MSMEs, AIMO proposed that the Banks must play a role of financial intermediary between the Buyer and Seller and every bank shall offer a Trade Account to its clients. This practical, feasible and immediate resolution was made by Mr. K.E. Raghunathan, Former National President of AIMO, at the webinar on “Delayed payments to MSME, its Impacts and Suggestions” which was organised by POWER2SME in partnership with All India Manufacturers Organisation (AIMO). The event was chaired by Dr. H.P. Kumar, Former CMD, NSIC, and was addressed by Mr. K.E. Raghunathan, Former National President of AIMO, and Mr. Sudhir Jha, Member National Governing Council, AIMO.

Mr. K.E. Raghunathan recommended: “To mitigate this issue of delayed payments to MSME, suggested that the Banks must play a role of financial intermediatory between the Buyer and Seller. Like a savings or current account, every bank shall offer a Trade account with a MSME clients and also to Corporates / State Government departments / undertakings, Central Government Ministries / PSU. Every holder of such Trader account facility must upload their regular suppliers and buyers list like how we add a beneficiary for online payments. When an invoice is raised, it will be routed through the seller bank to the buyer bank and the buyer bank in turn will secure the acceptance of the invoice from the buyer. Once transaction is completed the seller bank will automatically pay the buyers bank for the invoice amount as per agreement between them.

“If there is any shortfall in the seller account their bank will collect interest as applicable. A portion of OCC sanctioned limit shall be kept under Trade Account. Every such banker will be asked to declare how many of their account holders are defaulters and suitable action will be initiated by the Government. By this way, the seller will not suffer, there is no need for his running around to collect dues, additional interest burden, ease of doing business will be in place and to a large extend prevent corruption. This will also unnecessarily avoid rubbing between the buyers and sellers and spoil their relationship,” explained Raghunathan.

Dr. H.P. Kumar highlighted: “The biggest challenge faced by MSME is in realising their outstanding’s from Private Companies, Corporates, State Government Undertakings, State Government departments, Central Government ministries, PSUs, Statutory bodies. It is estimated that over Rs. 7.5 lakhs crores is the outstanding against Refunds of EMD, Security Deposits, GST, IT, Performance Guarantee and Payment dues against supply, services, AMC contracts.”

Mr. Jha said: “The various initiatives of the GoI towards implementation of the delayed payment dues to MSME and the redressal mechanism created for that purpose. There is also a regulatory mechanism such as highlights over due payments to MSME in Balance sheet. However, these measures have not been found adequate to resolve the issues.”

AIMO has initiated this proposal with RBI / MoF to implement on urgent basis to be a solution for delayed payments and this will be a unique such implementation throughout the world to benefit MSME. Also AIMO has requested MoF to issue directive to all State Government and Central Government procurement agencies to waive payment Earnest Money Deposit (EMD) from MSME units registered in any part of the country. Today only those situated in the State are exempted from EMD for participation in State Government tenders. Currently GST becomes payable the moment sale Invoice is raised even if the payments are not received. This acts as an additional burden to MSME and therefore, AIMO pleads for banks to pay GST from Trade accounts directly before settlement to the seller, just as TDS is done.

For further information, please contact: Mr. K.E. Raghunathan, Past National President, AIMO. +91 9840947485