MSME Minister Jitan Ram Manjhi has informed Parliament that the Reserve Bank of India (RBI) currently has no proposal regarding extending the NPA (non-performing assets) classification period from 90 days to 180 days. According to the mandate by the RBI, loans can be classified as NPAs if they are overdue by more than 90 days.
“NPA classification is under the purview of RBI. As informed by RBI, no proposal regarding extension of NPA classification period from 90 days to 180 days is under consideration,” Manjhi in a written reply to a question in the Rajya Sabha on whether the government has considered extension of NPA classification period for loans to MSMEs by banks and government.
Extending the classification period to 180 days has been a long-standing demand of the MSME sector as a number of enterprises struggle to receive timely payments from their buyers, leading to loan default in multiple cases.
This further leads to reluctance among banks to offer credit to MSMEs. Ease in classification norms is expected to improve MSMEs’ ability to repay loans and help banks extend credit to them.
The central bank in November 2021 had said that lenders can upgrade loan accounts to ‘standard’ from NPA only if all the arrears of interest and principal are paid by the borrower.
Moreover, the RBI had also asked lenders to classify borrower accounts as overdue as part of their day-end process irrespective of the time of running such process. Similarly, lenders were asked to classify accounts as SMA as well as NPA as per the day-end process for the relevant date instead of month-end.
The gross NPAs with respect to credit outstanding to MSMEs as of March 31, 2024, were Rs 1.25 lakh crore, down from Rs 1.30 lakh crore as of March 31, 2023, indicating year-on-year improvement in the asset quality. Consequently, the share of GNPAs as a percentage of credit to MSMEs dropped from 11.03 per cent as of March 2020 to 7.58 per cent as of March 2022 and 4.46 per cent as of March 2024.
The gross NPAs for scheduled commercial banks had also dropped to 2.67 per cent in June 2024 from 11.18 per cent in March 2018, the finance ministry said in a post on X on December 14.
Meanwhile, the FICCI-IBA Bankers’ Survey in September this year said that MSME NPAs are likely to increase over the next six months. The survey round comprised 22 banks including public sector, private sector and foreign banks representing about 67 per cent of the banking industry.