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‘MSMEs should get more time to meet new NPA norms’

There has been absolutely no impact of Covid-19, mainly because people are vaccinated. That could be one reason. Anyone who is affected is also able to return to work soon.

We think that at this stage, the government should take a more relaxed approach to SMEs to get back to business rather than tightening the norms now.
We think that at this stage, the government should take a more relaxed approach to SMEs to get back to business rather than tightening the norms now.

Q&A: Umesh Revankar, vice chairman & MD, Shriram Transport Finance Company

‘MSMEs should get more time to meet new NPA norms’

The recent jump in Covid-19 cases has not affected business or collections so far, Umesh Revankar, vice chairman & managing director of Shriram Transport Finance Company, said while speaking to Shritama Bose. He said there is a need to give micro, small and medium enterprises (MSME) accounts more time to comply with the new regulations on bad-loan classification that kick in on March 31. Excerpts:

Has the resurgence in Covid infections affected business?

There has been absolutely no impact of Covid-19, mainly because people are vaccinated. That could be one reason. Anyone who is affected is also able to return to work soon. In the market also, I do not see any kind of slowdown in activity and credit demand looks equally good. Collections are good. In fact, our December collections were an all-time best and January looks equally good.

What are you expecting from the Budget?

On behalf of MSMEs, I have made certain suggestions. They have suffered due to Covid while large enterprises have flourished during this period. Large manufacturers had a distinct advantage while the small enterprises were at a disadvantage. So our suggestion was that we should reduce the GST (goods and services tax) for small enterprises to 12% from 18%. Differential GST is what we asked for. We also said that they should get an interest subsidy. Even though there is an interest subsidy scheme for small enterprises, availing it is a big challenge.

So direct transfer of money should be made, the way it is done for affordable housing. We also said that on NPA (non-performing assets), the RBI has recently come out with a clarification saying that on the day of the due date, the NPA needs to be stamped. We think that at this stage, the government should take a more relaxed approach to SMEs to get back to business rather than tightening the norms now.

So you have asked for MSMEs to be exempted from the new asset classification norms?

We have asked that they be given more time, not be exempted.

It is expected that once the new norms kick in on March 31, the NPAs for the sector are set to rise. To what extent do you see them rising?

There are two things here. The first is about stamping the NPA on the due date the moment it crosses 90 days. The second is that if at all the customer pays back the money and comes below 90 dpd, even then it should be tagged as NPA unless the customer pays the full outstanding amount. The second system was practised by us as a company, but the industry was not practising it. So we are not impacted that much. We are tagging it at the end of the month, giving time for the customer to bring it below 90 days. That is the only area where we were not doing it, but the overall impact for us as an individual company is not big. But there are other companies who did not tag NPAs when there was partial payment. So the impact on the industry could be a little different.

The RBI is now in favour of regulating large NBFCs on a par with banks. What does that mean for the sector? Does that mean players like you will be interested in bank licences?

The RBI’s regulatory and supervision team have been treating us on a par with banks for the last four years or more. So on all inspection or supervision, we are on a par with any scheduled bank. We have recently completed one inspection and we did not see a change. Companies which are well-governed should face no issues. A bank is a very different vehicle for delivering credit. We are giving credit to the underbanked and unbanked, and for that an NBFC is a better model, because you can reach the customer very easily. But the moment you become a bank, you’ll not be able to reach the same customers. Why should I lose the customer base I’ve built over a period of time?

Last year, freight rates were a concern because they were not rising despite fuel prices rising. How is that trending now?

Demand is yet to pick up, but there is a good trend. If you look at year-on-year sales, it’s up by around 20% across all segments in commercial vehicles. Last year may not be the parameter, but I feel there is a reasonably good demand, though it is still subdued because capacity utilisation was not being done till October-November. Post-November, manufacturing and all other activities have improved. Now, in February and March, demand is likely to be very good. Last year, these two months were very good, and this year it should be 15-20% more than that.

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