Bid to soften blow: Govt, RBI in talks for relief to critical sectors

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Published: March 19, 2020 6:15:27 AM

Bankers have already told the government that, given the enormity of the crisis, bad loans will spike if NPA norms are not suitably relaxed, and even good accounts will turn bad, according to industry sources.

The central bank in January last year allowed this one-time restructuring of existing loans to support MSMEs that have been hit by the double whammy of the demonetisation and the goods and services tax regimes.The central bank in January last year allowed this one-time restructuring of existing loans to support MSMEs that have been hit by the double whammy of the demonetisation and the goods and services tax regimes.

As the coronavirus outbreak hurts economic activity, the government and the Reserve Bank of India (RBI) are in talks to firm up urgent steps to soften the blow to certain sectors ­- especially micro, small and medium enterprises (MSMEs), tourism and related areas – due to deteriorating cash flows, sources told FE.

The government may impress upon the RBI to consider extending beyond December 2020 a loan restructuring scheme for MSMEs, if the crisis lingers on well into the next fiscal. It will likely support the lenders’ request for a regulatory forbearance from the RBI on non-performing asset (NPA) classification, or at least some relief in this regard, one of the sources said.

While the government has impressed upon state-run banks to ensure adequate credit flow to MSMEs, it is also likely to ask the lenders to adopt a flexible approach towards repayment by them. Collateral-free loans to MSMEs with good repayment history will likely be considered as well. Bankers have already told the government that, given the enormity of the crisis, bad loans will spike if NPA norms are not suitably relaxed, and even good accounts will turn bad, according to industry sources.

“Discussions are going on (to help MSMEs). In any case, they have the loan restructuring window available to them now. The government is closely monitoring the situation. Some measures will be finalised soon,” a senior government official told FE.

Asked if such a restructuring scheme will be extended to all companies hit by the crisis, irrespective of their size, another source said no such decision has been taken as yet. “(However) Instead of a restructuring scheme for all firms, maybe, the government will support a proposal to extend such a relief to companies in those sectors that have been hit the hardest. It will require comprehensive discussions with the RBI,” he said.

As such, the slowdown in credit flow to MSMEs has remained a critical issue for months now. While loans to micro and small units barely rose by 0.5% year-on-year as of January 31, those to medium enterprises went up by just 2.8%, much lower than the 8.5% growth in the overall non-food credit. However, credit to tourism, hotels and restaurant segment grew by an impressive 17.4% y-o-y as of January 31, while that to commercial real estate rose by 14.7%, much higher than the 8.9% rise in the overall services segment.

The government had on February 27 said as many as 5.28 lakh MSME accounts, which were witnessing stress but were still standard, have been restructured since January 2019 under the RBI scheme, which has been extended by nine months to December 2020 to help such businesses. The central bank in January last year allowed this one-time restructuring of existing loans to support MSMEs that have been hit by the double whammy of the demonetisation and the goods and services tax regimes.

While granting the extension last month, the RBI said the aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower should not exceed Rs 25 crore as of January 1, 2020.

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