Securitisation ordinance fails to protect SSIs

NEW DELHI: The Securitisation Ordinance comes down heavily on corporate creditors, but fails to do equal justice to the small sector.
As suppliers to the large sector, SSIs are dependent on the latter for timely payments. Only then can they make payments in time, including repayment of dues to banks and financial institutions.
Yet, the Securitisation Ordinance empowers banks and FIs to recover loans through means as severe as attachment of assets, but fails to either exempt borrowers, who fall in the SSI category, or arm them with equally sweeping powers to recover dues. Such asymmetry in treatment of credit works to the small sector’s disadvantage.
Experts say that the Securitisation Ordinance should either treat all categories of lenders alike, or provide for exemptions for special categories of borrowers.
According to RY Angle of Priya Chemicals, the Reserve Bank of India should use its auditors services to ensure that the large sector pays the small sector on time.
He points out that RBI auditors, who audit banks to oversee the NPA classification, should simultaneously ensure that another of RBI’s directions is implemented. This direction was issued by RBI in October ’00, based on recommendations of an interministerial group headed by deputy prime minister LK Advani.
This circular states, “For large corporate borrowers enjoying working capital limits of Rs 10 crore and above from the banking system, a separate sub-limit (within the overall limit) is to be fixed specifically for meeting payment obligations in respect of purchase from SSI sector either on cash basis or bill basis.�
Angle states that if RBI auditors are asked to ensure at the time of audit that the October ’00 circular is also being implemented by banks, then the woes of SSIs would end, and they too would be able to meet payment obligations.
Failing this, most SSIs and tiny units would be declared defaulters and their businesses would be wiped out.
He further points that SSIs are handicapped when it comes to recovering their dues. They cannot refuse to extend the 90-day credit available in the market to buyers, as they would lose business.
Additionally, they are unable to press for payment even at the end of this customary 90-day period for the fear of losing business.
Hence, the best option is for the government to ensure that the small sector gets its payments in time, so that it can repay institutional dues in time.
Interestingly, the RBI has not been receptive to the SSI cause, said Angle. The section dealing with banks and FIs is serious about safeguarding the interests of institutional lenders, but unconcerned about the small sector.
The section dealing with enforcing RBI’s October ’00 circular is not serious about its task. The result is that it leaves SSIs in the lurch.