RBI opens opportunity window for sick MSMEs

The scheme will benefit MSMEs having loans that have gone into default but have not crossed 90 days because of which they are out of the non-performing asset basket.

Published: 02nd January 2019 06:33 AM  |   Last Updated: 02nd January 2019 06:33 AM   |  A+A-

RBI logo

A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi, India.

By Express News Service

MUMBAI: The micro, small and medium enterprises (MSMEs) sector welcomed the new year with a bang as the Reserve Bank of India on Tuesday agreed to a one-time restructuring of a certain category of stressed debt up to Rs 25 crore. 

The scheme will benefit MSMEs having loans that have gone into default but have not crossed 90 days because of which they are out of the non-performing asset basket.

The decision to consider easing the stress on the MSME sector was taken at an RBI board meeting on November 19 last year. MSMEs are job generators and contribute in a big way to the country’s manufacturing sector.

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To be eligible for the scheme, the total exposure should not exceed Rs 25 crore as on Tuesday. And the restructuring has to be completed by March 2020.

Reserve Bank of India, in a circular on Tuesday, said that MSME loans up to Rs 25 crore that are “standard assets” as on January 1, 2019, but are in default can be restructured, subject to certain conditions. That is, loans that have seen a default but is still within the 90-day period, after which it would get classified as non-performing asset.

The aggregate exposure including non-fund based facilities of banks and non-banking financial companies (NBFC) to the borrower should not exceed Rs 25 crore, and the restructuring has to be completed by March 2020, the circular said. This is an important step in addressing the concerns of the MSME (Micro, Small and Medium Enterprises) sector that has been reeling under twin issues of demonetisation and GST implementation.

It was one of the contentious issues on which the RBI Board could influence the central bank to look at restructuring of MSME loans in November when Financial Services Secretary Rajiv Kumar was reported to have made a detailed presentation on the sector’s woes.

“Micro, Small and Medium Enterprises form an important component of the Indian economy and contribute significantly to the country’s GDP, exports, industrial output, employment generation, etc. Considering the importance of MSMEs in the Indian economy, it is considered necessary at this juncture to take certain measures for creating an enabling environment for the sector,” RBI said.

Banks and NBFCs that want to adopt the scheme should put in place a board-approved policy within a month, the circular said. Banks will have to make 5 per cent provision, in addition to provisions already held for restructured accounts.

“A major step for MSMEs with a total liability up to 25cr suffering from past issues and illiquidity, though delayed. Congratulations RBI for the restructure circular,” S Gurumurthy, RBI Board member who has been one of the strongest proponents of supporting MSME sector, tweeted on RBI announcement.
MSME loans were also analysed in detail by the RBI as seen in its Financial Stability Report. The latest report released on Monday said that “an analysis of portfolio of MSMEs shows that the performance of PSBs in the MSME segment trails that of other intermediaries (private banks and non-banking financial companies), both in terms of inherent as well as realised credit risk”.

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