RBI exercising forbearance on MSME lending as small business loans are in trouble, says Raghuram Rajan

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Published: October 13, 2019 4:57:50 PM

Credit and Finance for MSMEs: Former Reserve Bank of India governor Raghuram Rajan highlighting the government’s Mudra scheme of giving unsecured loans to small businesses and entrepreneurs said that such loans to MSMEs are not turning out well.

Raghuram Rajan, RBI Governor,  Rathin Roy, Shamika Ravi, indian economy,  Raghuram Rajan newsAccording to a report by CIBIL, the outstanding MSME credit went up to Rs 25.2 lakh crore at the end of 2018 up from Rs 10.4 lakh crore in 2013. (Reuters)

Credit and Finance for MSMEs: Former Reserve Bank of India governor Raghuram Rajan highlighting the government’s Mudra scheme of giving unsecured loans to small businesses and entrepreneurs said that such loans to MSMEs are not turning out well. Rajan said that such loans to MSMEs are now in trouble and hence the RBI is exercising forbearance on them, CNBC-TV18 tweeted on Sunday quoting the former governor from his speech at the O.P. Jindal lecture at Watson Institute, Brown University recently.

Pointing towards the rise in bad debts among MSMEs, Rajan claimed that the problem with forbearance is that it doesn’t reduce bad loans, but almost always increases them. According to a report by CIBIL, the outstanding MSME credit went up to Rs 25.2 lakh crore at the end of 2018 up from Rs 10.4 lakh crore in 2013 even as the consolidated NPAs among MSMEs grew from 7.3 per cent to 9 per cent during the period.

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However, in September this year, Finance Minister Nirmala Sitharaman addressing media had directed banks to not declare stressed loan account of MSMEs as NPAs till March 31, 2020 and had asked banks to recast MSME loans even if more credit is to be given to the MSME.

Rajan also questioned the government’s move of ‘loan melas’ for MSMEs. He said that the government is now going back to even less commercial principles, to the era of ‘loan melas’. Nirmala Sitharaman had last month announced plans for organising such events to boost lending amid the current economic slowdown and had said that the public sector banks will be meeting NBFCs and retail borrowers to give credit to borrowers.

Rajan flagging the uncertainty in government’s vision said that there is a lot of uncertainty about the economic vision at the top and there’s a mix follow through below which is in stark contrast to the strong political vision.

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