MSMES can restart business with no pressure to quickly repay loans, say experts
Micro, small and medium enterprises ( MSMES) were handed a breather by the Reserve Bank of India (RBI) on Thursday, which gave its nod for the restructuring of loans. MSMES that didn’t slip into the non-performing asset (NPA) category till March 1, 2020, and were treated as ‘standard’ accounts will benefit from the scheme, set to be implemented by March 1, 2021. This is an extension of a continuing scheme — in place till December 31, 2020 — which was meant for ‘standard’ accounts till January 1, 2020. en the The chances move is of significant, an MSME loan givaccount going bad are higher than others. In its financial stability report last month, the RBI had said the MSME sector was hit by the lack of cash flows during Covid. “The restructuring will provide the necessary relief to the MSME sector, which has experienced a severe impact resulting from the lockdown, containment, reverse migration, supply chain, and trade choking etc,” said Uday Kotak, President of the Confederation of Indian Industry. Only MSMES registered under the GST regime, with aggregate borrowings up to ~25 crore up to March 1, 2020, will be eligible for this scheme. “Asset classification of borrowers classified as ‘standard’ may be retained as such, whereas accounts that may have slipped into the NPA category between March 2, 2020, and the date of implementation may be upgraded as ‘standard assets’,” RBI circular dated August 6 said. The existing restructuring scheme was applicable to 900,000 MSMES. Till January 31, 2020, more than 600,000 MSME accounts were restructured by public sector banks, amounting to ~22,650 crore. A recent RBI analysis revealed that MSMES (in terms of amount) were way ahead of other sectors in availing the moratorium. Close to 65 per cent of loans outstanding for MSMES were under moratorium till April 30.
Rajkiran Rai G, the MD and CEO of Union Bank, said normalcy would return to MSMES within two years of the RBI’S move. “The policy decisions reflect good understanding of the working of MSMES. A restructuring to match the cash flow, by factoring in the impact of Covid19, will reduce slippage in the sector to a large extent. This move, along with the government’s emergency credit line, will help MSMES restart business with no immediate pressure of repayment.”
Though the restructuring for corporate accounts would have many safeguards, the scheme for MSMES was more liberal, he pointed out.
The Federation of Indian Micro and Small & Medium Enterprises (FISME) highlighted that restructuring or liquidation was a difficult exercise for loss-making MSMES, given the competing claims by multiple creditors vying for possession of the MSME assets, in the absence of Insolvency and Bankruptcy Rules for proprietorship and partnership firms.
Such firms make up more than 90 per cent of the sector.
“RECOGNISING THE NEED FOR CONTINUED SUPPORT TO MSMES’ MEANINGFUL RESTRUCTURING, RBI HAS DECIDED LENDING INSTITUTIONS MAY RESTRUCTURE THE DEBT”
NIRMALA SITHARAMAN, FINANCE MINISTER