Chennai: The Reserve Bank of India, as a New Year gift to the Micro, Small and Medium Enterprises (MSME) sector, has allowed one-time restructuring of existing debt up to Rs 25 crore for companies that defaulted on payments.
The apex bank has said the policy applies if the loans given to companies continue to be classified as standard assets.
The decision will help MSMEs which are facing cash crunch in the wake of demonetisation and GST implementation, experts have stated.
ADVICE TAKEN
The RBI’s board, in its crucial meeting 19 November last year, had advised the central bank examine a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to such conditions as are necessary for ensuring financial stability.
“To facilitate meaningful restructuring of MSME accounts that have become stressed, the RBI has decided to permit a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on 1 January without an asset classification downgrade,” the central bank said in a statement.
To be eligible for the scheme, the aggregate exposure, including non-fund based facilities of banks and NBFCs, to a borrower should not exceed Rs 25 crore as on 1 January, and the restructuring has to be implemented by 31 March 2020.
DIFFERENCES TO REDUCE?
Restructuring package for MSME was one of the sore points in the tussle between the RBI and government that eventually led to the resignation of RBI Governor Urjit Patel.
There was a detailed presentation by Financial Services Secretary, Rajiv Kumar, on the cash crunch being faced by the MSME sector at the crucial 19 November board meeting. The government had suggested several steps to help the sector which contributes 50 per cent to the manufacturing sector.
“MSMEs are vital for India’s economic ascension. Several initiatives, including customised products and strategies as per their needs and automated loan processing, have been introduced to achieve faster turnaround and accelerate MSMEs’ growth,” Kumar had said last year.
It was touted that under the new RBI governor Shakthikanta Das, the differences between the government and apex bank will reduce over time and the animosity between the two entities will diminish.
It must be noted that Prime Minister Narendra Modi had, in December, announced that MSMEs will be able to avail of loans of up to Rs 1 crore within an hour, giving a lifeline to the ailing sector.
ROLE OF BANKS
As per the RBI notification, “Each bank / NBFC should formulate a policy for this scheme with board approval which shall, inter alia, include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.’
The borrowing entity is GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST-registration, it said.
“It is clarified that accounts classified as NPA can be restructured; however, the extant asset classification norms governing restructuring of NPAs will continue to apply,” it said.
The policy will include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.