Ease of Doing Business for MSMEs: The latest round of FICCI’s Economic Outlook Survey, released on Sunday, suggested reconsidering the provision of the 90-day limit for classifying MSMEs’ over dues into non-performing assets (NPAs). The survey, conducted in March 2022 among economists to forecast key macro-economic variables for FY23 and for Q4 FY22 and Q1 FY23, said the working cycle of MSMEs in many cases extends much beyond the 90-day period. Thus, the limit should be increased to 180 days, the survey added.
According to the mandate by the Reserve Bank of India (RBI), loans can be classified as NPAs if they are overdue by more than 90 days. MSMEs, which struggle to receive timely payments from their buyers, end up defaulting on loans in multiple cases. This has been one of the reasons for reluctance among banks to provide affordable credit to MSMEs. The ease in NPA norms from 90 to 180 days has been one of the key asks by the sector as it would seemingly improve MSMEs’ ability to repay loans and also perhaps encourage banks to loosen their purse strings.
Importantly, the RBI had last month extended the deadline for non-banking financial companies (NBFCs) to implement the new NPA upgradation norms by six months from March 31, 2022, to September 30, 2022.
In November last year, the RBI had announced that loan accounts can be upgraded to ‘standard from NPA only if all the arrears of interest and principal are paid by the borrower. So far NBFCs were upgrading accounts from NPA even if the complete dues were not cleared. The RBI had also asked NBFCs to classify borrower accounts as overdue as part of their day-end process irrespective of the time of running such process. Similarly, lenders would also have to classify accounts as SMA as well as NPA as per the day-end process for the relevant date instead of month-end.
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Meanwhile, the survey also suggested that banks reduce the cash margin from 25 per cent to 10-15 per cent. “Continuing support to MSMEs remains critical especially given the impact of the ongoing (Russia-Ukraine) conflict on smaller enterprises. It is important that the cash flows of the MSMEs enterprises are in place in order to maintain the operations,” the survey noted.
According to the data shared by MSME Minister Narayan Rane in Rajya Sabha last month, MSMEs had a share of 57 per cent amounting to Rs 1,632 crore in India’s total exports to Russia worth Rs 2,854 crore during the April-January period in FY22. Likewise, MSMEs’ share in India’s total exports to Ukraine worth Rs 426.78 crore during the period was 59 per cent amounting to Rs 255 crore. However, in terms of the MSME sector’s exports to the world, exports to Russia and Ukraine had a share of only 1.17 per cent and 0.18 per cent respectively.