FM Sitharaman: No insolvency cases against MSMEs for 1 year; Covid-related debt excluded from defaults

By: |
May 17, 2020 1:10 PM

Nirmala Sitharaman said that the minimum threshold to initiate insolvency proceedings against MSMEs has been raised from Rs 1 lakh to Rs 1 crore.

FM Nirmala Sitharaman 5th day of Press Conference LIVE News in HindiThe minister said that a special insolvency resolution framework for MSMEs under Section 240A of the (IBC) code will be notified soon.

Ease of Doing Business for MSMEs: Finance Minister Nirmala Sitharaman announcing the fifth tranche of the Rs 20 lakh crore economic package on Sunday extended the initiation period of fresh insolvency proceedings against MSMEs by six months to up to one year depending upon the Covid situation. Sitharaman had recently suspended Section 7, 9 and 10 of the IBC Code for six months. “We are extending it by another six months because after the lockdown gets lifted immediately, you are not sure how much of business will get restored. So no fresh insolvency proceedings will be initiated up to 1 year.” The minister added that Covid-19 related debt would be excluded from the ‘default’ category under the Code to further enhance ease of doing business.

Nirmala Sitharaman said that the minimum threshold to initiate insolvency proceedings against MSMEs has been raised from Rs 1 lakh to Rs 1 crore. The minister said that a special insolvency resolution framework for MSMEs under Section 240A of the (IBC) code will be notified soon. This “will insulate the MSMEs. This is a major step forward. And in all probability, we will be going through an ordinance to achieve this goal immediately. Of course, we will go back to the Parliament, once it commences, to have it passed as an act,” Sitharaman said.

The raise in default threshold to Rs 1 crore was announced, by the minister in March, under section 4 of the Code. “This will by and large prevent triggering of insolvency proceedings against MSMEs,” a press note issued by the Finance Ministry had said.

Sitharaman on Thursday had announced that MSMEs will get 2 per cent interest subvention on loans up to Rs 50,000 secured under the Mudra scheme’s Shishu cover. The interest subvention will be provided to prompt payees for a period of 12 months. The total relief amount — under the subvention to Shishu loanees making regular payments — will be Rs 1,500 crore. A day earlier, the minister had announced six relief measures to boost liquidity and ease Covid impact including offering up to 20 per cent of entire outstanding credit offered by banks and NBFCs to MSMEs with upto Rs 25 crore outstanding credit and Rs 100 crore turnover. The minister had also said that a special package of Rs 20,000 crore will be offered as subordinate debt for MSMEs declared as NPAs or those stressed.

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