RBI loan recast gift to MSMEs: Proposed to Urjit Patel, applied by Shaktikanta Das, hailed by Gurumurthy

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Published: January 2, 2019 8:02:25 PM

The loan restructuring plan for MSMEs, then called by Fitch Ratings as a “step backwards” when proposed in November, has now been hailed by S Gurumurthy.

The plan, then called by Fitch Ratings as a “step backwards” when proposed in November, has now been hailed by S Gurumurthy, the Modi-government appointee on the RBI board, who was largely seen as pushing for easier lending norms to boost credit flow.The loan restructuring plan for MSMEs, then called by Fitch Ratings as a “step backwards” when proposed in November, has now been hailed by S Gurumurthy.

The Reserve Bank of India’s one-time loan restructuring plan for ailing MSMEs, rolled out under the new governor Shaktikanta Das, is on the same lines as what the board proposed during a crucial meeting in November, under the then governor Urjit Patel.

The plan, then called by Fitch Ratings as a “step backwards” when proposed in November, has now been hailed by S Gurumurthy, the Modi-government appointee on the RBI board, who was largely seen as pushing for easier lending norms to boost credit flow.

“A major step for the MSMEs with a total liability up to (Rs) 25 crores suffering from past issues and illiquidity, though delayed. Congratulation RBI for the restructure circular,” S Gurumurthy said in a tweet.

On the other hand, soon after the November meeting between RBI and the central board, Fitch Ratings in an interview had said that the risks of the plan will manifest within 6-9 months. The banks are unlikely to be prudent in restructuring loans given out to MSMEs (micro, small and medium enterprises), Saswata Guha, Fitch Ratings Director (Financial Institutions), said in an interview to PTI in late November. It’s never a good idea to relax lending norms to spur economic growth, Guha had said.

According to the RBI circular, banks would consider for restructuring those loans of up to Rs 25 crore to MSMEs that are classified as ‘standard’ as on 1 January 2019. Only those stressed loans would be considered for restructuring that are not yet classified as Non-Performing Loans. The process of restructuring has to be implemented by March 31, 2020.

Mint Street Memo, a report published by the RBI observes that though the contribution in credit lending by the NBFC’s is increasing, almost 90% of the credit to the MSMEs come from formal sources — banks. In FY2018 alone, almost 25% of the total commercial lendings was meted out to the MSMEs.

MSMEs have been reeling under a severe cash crunch, a problem which was further compounded by Demonetization and GST implementation. In such a scenario, the demand for easing of the NPA rules for small businesses has been gaining considerable momentum.

The Micro, Small and Medium businesses contribute to around half of the manufacturing sector activity and employment to 12 crore people, which is second only to the agricultural sector.

  • By Sania Ashraf

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