In Conversation with Arun Tiwari, CMD, Union Bank of India, Nirmala Sitharaman, Commerce & Industry Minister and RC Bhargava, Chairman, Maruti Suzuki on NPAs, MSME sector and need for standardisation if India is to emerge as a global manufacturing hub.

Edited excerpts:

Q: NPAs and capital requirement have been the two issues plaguing PSU banks of late. With public sector banks funding core growth sectors, with shortage of funds, is India in a position to maintain its status as the fastest growing major economy in the world?

A: Arun Tiwari – We are repeatedly asked two questions – NPA and capital. Of all public sector banks, I can vouch for my numbers. About 65% NPA is in core sector. So even if we tend to believe IMF number of 7.6% growth, that cannot happen till such time core sector is fixed.

When we talk about the core sector, we talk about steel, cement, roads and power. From 6.5 kilometre per day, now 30-35 kilometres of roads are being constructed per day. For last six months or so, in cement and steel both, there is positivity. Going forward, as the economy picks up, our woes of NPA will be taken care of in due course and that will release the capital, whatever is the provision.

I do not think in the times to come, when this cycle turns around for growth, we are well geared to fund it.. But what is worrying is the MSME sector. If we look globally, in all the developed economies from France, Germany, England, the share of MSME sector in each of this economy in the GDP has been highest and has helped with employment generation. Our own country with all grand standing from early 90s  till now, service sector and agriculture sector have swapped their positions as far as national output is concerned. The share of MSMEs has remained at about 15-16%. So for me as a public sector banker, our focus is there. I am pretty sure when the next wave comes — which I do not foresee during the current financial year — we all are geared up to ride that wave.

Q: Do you believe that now there is a strong case for a sharp rate cut given the fact that inflation has sort of stabilised over the last few months? 

A: Nirmala Sitharaman– I think you have spoken enough about rate cut. First of all, even as I would want to answer this question, it is very interesting that the banker himself is speaking about SMEs. Indian banks irrespective of whether they are public sector banks or private banks will have to do a complete brainstorming within themselves, within their organisations to see how best they understand SMEs in India. 

I am glad the chairman of the bank here on the panel speaks about SMEs, particularly in the developed countries.

We have studied quite thoroughly, SMEs let us say in Germany where they are a big success. But SMEs in Germany can’t be compared to our SMEs. Our SMEs are truly SMEs. In Germany, they are family owned, big, and SMEs in their context no doubt but SMEs in India are really micro. We may change the capital caps and say no this is nano and this is small and this is really small and that is macro but eventually all the SMEs in India by their very nature of business and the way in which they have grown in this country are small.

Therefore I would honestly appeal to the banks to have a complete brainstorming session within themselves with SMEs also participating because I find SMEs are going to be the biggest power engines to move our economy forward and unless we understand the SMEs nature of business, nature of cash liquidity expectations, nature of turnover, business modules, we will not be able to help them and in turn they would not be able to help the Indian economy to grow.

This is the time when banks will have to understand how do we fund and how do we sustain funding for SMEs which are all over the country giving employment opportunities to semi-skilled and skilled workers. With government skill India initiative going the way it is going, it is going to now have a big pool of people who are looking for employment and unless the SMEs are thoroughly revived with the help of banks, the government’s objective of making manufacturing sector contribute 25% by 2025 is just not going to be realised, So that is one appeal.

The second, of course, is about non-performing assets in banks. How industry, particularly those belonging to the core sector are largely among the NPAs. There is now a lot of initiative taken by the government where you are talking with the industry, talking with the banks to ensure that the revival packages that you would offer for those sick industry makes sense. So that has to be worked out in right earnest. You really cannot move forward unless you are going to be able to address it and not look at it as a curse. It is time to forget all that and try to get them out of that malaise and make them move forward.

A lot of synergy between bank, industry, CII, FICCI and Assocham is needed. There is no way in which India can sit and watch the situation any longer, government including.

Q:  We have seen a big turn last few days with the Essar OilBSE -0.15 % deal getting done which was the encouraging but on interest rates, do you think there is scope for sort of significant cut in interest rates?

A: Nirmala Sitharaman– I will leave that question for the moment with the monetary policy committee. They have made a very good beginning and I have the confidence that they will take the economy forward.

Q:   Bhargava, is interest rate such a big issue or is it just something that we in the media tend to obsess about?

A: RC Bhargava– I would like to respond to what the minister said about SMEs, I would classify SMEs in two categories; one are those who make products which are directly sold in the market and a lot of these SMEs are doing that in terms of inputs or products for the villages and local markets and such things. So no issues there.

There is a second class of SMEs which make products and inputs for the manufacturing industry as tier-2 or tier-3 or even tier-1 vendors. Now in that category the only requirement which industry has is that these should be able to make consistent quality and in volumes which are required for the growth of industry.

Our experience is that a lot of our quality problems emanate from the SMEs because the way these SMEs are structured, the way they are managed, the way their capital, equipment are and the kind of manpower they employ are totally inconsistent with quality manufacturing.

And I think that is an area which requires serious attention if you are going to invite areas like what was mentioned in aerospace and defence and automobiles and such things for manufacturing in India. It would not happen with this kind of supply base which we have.

I get to see them when I go to different places but when you want to have them on one platform so that we can talk, it is very difficult to access them.

The Quality Control Institution the QCI, Quality Council of India is doing a good job trying to access them and build consciousness about the need for standards but considering the cost it involves, the resistance to bringing in quality is unbelievable.

They would not want standards to be brought in because people get scared that it might mean a lot more investment to match up to the expectation of standards. But on standards we need to do a lot of work, all of us will have to talk.

Source:  The Economic Times