RBI board’s decision on MSME loan restructuring a ‘step backwards’, Fitch explains why

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November 28, 2018 7:20 PM

RBI board’s decision of restructuring loans up to Rs 25 crore for the MSME sector is a ‘step backwards, said a global rating agency.

cash crisis, rbi, reserve bank of india, banking system, omo, crr, crr, business news in hindiOn the decision to extend the timeline for implementing capital adequacy norms (Basel III) by the lenders, Guha said the move is “certainly credit negative” as it reflects the sector’s poor capitalisation. (Reuters)

RBI board’s decision of restructuring loans up to Rs 25 crore for the MSME sector is a ‘step backwards, said a global rating agency. In view of the past record, the lenders would restructure the MSME loans without exercise adequate prudence and risks would emanate in the coming 6-9 months in the banking sector, PTI reported citing Saswata Guha, Director (Financial Institutions) Fitch Ratings.

“In one way, it is a step backwards given RBI’s previous stance to do away with all restructuring. It clearly reflects stress in the MSME sector although we expect risk to manifest in the next 6-9 months,” he said. It’s ‘never a good strategy’ to relax lending rules to trigger growth, he said, adding that the legacy problem loans will continue to be a bigger drag on the MSME sector’s asset quality until March next year.

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“There is adequate evidence in the form of USD 140 billion of NPL (non-performing loan) stock that the sector is currently grappling with, which, in my opinion, is a direct result of the unbridled lending of the past,” he also said.

On the decision to extend the timeline for implementing capital adequacy norms (Basel III) by the lenders, Guha said the move is “certainly credit negative” as it reflects the sector’s poor capitalisation.

 

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