MUMBAI: In a move that will benefit thousands of troubled small businesses, banks and
finance companies will grant debt relief to micro, small and medium enterprises (MSMEs) saddled with loans of up to Rs 25 crore that are facing stress but are not yet classified as bad loans. Announcing the scheme, the Reserve
Bank of India said the loan restructuring would be subject to the borrower being GST-registered on the date of implementation of restructuring.
In a circular issued to all banks and NBFCs issued late on Tuesday, RBI said MSMEs form an important component of the Indian economy and contribute significantly to the country’s gross domestic product, exports, industrial output and employment generation. “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.
SMEs were the worst hit among various industry segments following demonetisation and implementation of the Goods and Services Tax. Availability of credit to MSMEs declined further after the IL&FS default crisis which led to bank credit to non-banking finance companies drying up. This in turn reduced the ability of NBFCs to lend to MSMEs.
According to bankers, the sector was facing a liquidity problem because of lack of confidence of banks who had turned risk-averse in the wake of rising bad loans. RBI’s decision to insist on MSMEs registering on the GST network is expected to hasten formalisation of the MSME sector which will improve the banks’ ability to lend to such enterprises. Access to GST details will give banks better information about the MSMEs cash flows and creditworthiness.
In terms of the scheme, the restructuring must be implemented by March 31, 2020. Banks will need to make a provision of 5% towards these restructured loans. Each bank/NBFC should formulate a policy for this scheme with board approval. Those MSMEs that are not exempt from GST will need to be registered on the GSTN on the date on restructuring.
This is the second major decision to be taken by newly appointed RBI governor
Shaktikanta Das. Das had earlier, in consultation with the government, named a committee to look into the transfer of RBI’s surplus reserves to the Centre. Credit to the SME sector was one of the contentious issues raised by government-appointed board members in RBI’s board meetings.
The issue of restructuring of MSME accounts was discussed in the meeting of the central board of RBI on November 19 and also by Das in his recent interactions with the banks and other stakeholders. The government on its part launched a loan aggregation portal which enables MSMEs get loan approval in 59 minutes from banks. According to RBI sources the circular is not in conflict with its earlier directive on February 12 doing away with all loan restructuring schemes. “The MSME loan restructuring scheme is applicable only for loans up to Rs 25 crore while the February 12 circular applies to borrowers with loans above Rs 25 crore,” sources said.