Apex business, commerce and industry chambers of both Kashmir and Jammu regions have voiced a need for a more open dialogue with banks and J&K government on businesses’ debt issues. While most of the business chambers have welcomed the One Time Settlement (OTS) Scheme announced by J&K Bank for indebted businesses upto Rs. 5 crore, Federation of Chambers of Industries Kashmir (FCIK), Jammu Chamber of Commerce & Industry, Kashmir Chamber of Commerce & Industry (KCCI) and PHDCCI Jammu & Kashmir have made some important recommendations for a solution that works for both businesses and banks.
Considering the criticality of the businesses aligned with these important industry chambers to J&K’s overall economic system it is important to address their financial challenges at the earliest.
Managing issues related to bank indebtedness among businesses, especially in these post-pandemic times, requires a well-thought-out approach, based on best practices from across the country and other global economies. In all this, it is essential to strike a balance between providing support to struggling industries and safeguarding the financial health of banks. The first step would be an institutionalised interface involving collaboration between government authorities, industry bodies, and financial institutions. That collaborative and institutionalised interface is missing now.
KCCI has earlier highlighted that the ratio of non-performing accounts (NPAs) in Jammu & Kashmir is relatively low compared to banks’, including that of J&K Bank’s, total NPAs, indicating a decent loan repayment culture among local borrowers. It is, therefore, important to treat the defaulters, who have not defaulted wilfully and have not diverted loan money to other lucrative business ventures, with due dignity.
As highlighted by KCCI, businesses are expecting the Jammu & Kashmir Bank to announce the OTS Scheme for borrowers at the earliest. Businesses believe that this scheme would allow defaulting borrowers to settle their outstanding dues with the bank by paying a mutually agreed-upon amount, which could be lower than the total outstanding debt. They believe that timely implementation of the OTS Scheme would provide relief to borrowers who faced financial difficulties due to events beyond their control, such as floods, turmoil, and the COVID-19 pandemic.
Another issue related to the pending payments to some businesses and enhanced role of State Industrial Development Corporation (SICOP) in resolving those pending payments. As per FCIK’s recommendations, SICOP should improve its performance as a mediator and facilitator of payments between government departments and MSMEs. J&K’s industries expect that SICOP should ensure that payments received from government departments are disbursed promptly to the supplying MSMEs, avoiding unnecessary delays and easing the cash flow situation for these businesses.
The establishment of an Alternative Dispute Resolution Cell (ADRC), as suggested by FCIK, could be an effective way to resolve the long-pending issue of delayed payments to Micro, Small, and Medium Enterprises (MSMEs) by government departments and Public Sector Undertakings (PSUs). The ADRC should be equipped with adequate powers to mediate, negotiate, and arbitrate disputes related to delayed payments in accordance with the Micro, Small, and Medium Enterprises Development Act of 2006 (MSMED Act-2006). This would provide a formal and efficient mechanism for addressing payment delays, avoiding the need for court involvement and reducing the financial burden on MSMEs.
Finding solutions
Several countries, including India, have implemented credit guarantee schemes to encourage banks to lend to MSMEs and reduce the risk of defaults. Under such schemes, the government provides guarantees to a portion of the loans extended to MSMEs, typically covering a percentage of the outstanding loan amount. This acts as a safety net for banks, making them more willing to extend credit to MSMEs, even during challenging economic conditions. India’s Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is one such successful example. J&K should explore this option, and assess the extent to which it can help save these industries and people’s jobs.
In all this, it is also important to mitigate the risks for banks, with the government expanding the ambit of credit guarantee schemes. Such schemes would act as a safety net for banks by guaranteeing a portion of the loans provided to MSMEs, reducing the potential losses in case of default. Several economic systems have enacted laws or regulations that ensure prompt payment to suppliers, particularly MSMEs, by government departments and large corporations. Implementing similar legislation in Jammu & Kashmir could help tackle the issue of delayed payments, and address liquidity crunch among businesses.
There are several examples of governments during times of crises like natural disasters, economic downturns, or pandemics, some countries having introduced specific support measures for MSMEs. These measures may include loan moratoriums, interest rate subsidies, grants, or direct financial assistance to help MSMEs weather the storm and prevent them from slipping into non-performing assets (NPAs). Evaluating and implementing similar targeted support measures in Jammu & Kashmir could be beneficial.
Promoting financial literacy and capacity-building initiatives for J&K’s MSMEs can improve their financial management practices, making them better equipped to handle challenges and repay loans on time. Training programs that cover topics like financial planning, cash flow management, and debt management can empower MSMEs to navigate tough economic situations more effectively. Importantly, there are instances of certain businesses having diverted their bank loans from the sanctioned purposes and making investment in more lucrative business avenues. Such practices have also dented the viability of the businesses that had been granted loans in the first place, and put the careers of their employees in jeopardy. Government and banks should take effective measures to plug this major loophole.
The J&K government could also consider sector-specific support to industries that face acute challenges. This support could include tailored financial assistance, policy incentives, or technology upgrades to boost productivity and competitiveness.
One of the main demands of all business chambers, including that of PHDCCI J&K chapters, is the demand that the scheme should be extended to all account holders, regardless of the eligibility capping of Rs. 5 crore. This demand reflects a desire for broader inclusivity, where more businesses can benefit from the scheme and find relief from their financial distress. An effective OTS scheme in the current circumstances would allow borrowers to settle their dues by paying a mutually agreed-upon amount, which can be lower than the total outstanding debt. This can provide relief to borrowers and help banks recover at least a portion of their dues.
In the end, flexibility by all parties and focus on finding a common ground towards a win-win-win solution would be the key. J&K cannot afford an economic meltdown – neither for businesses, nor in its banks.
