MSME Restructuring Window: Delay in recognition of Rs 16,000 crore NPAs likely

Published: February 6, 2020 1:47:29 PM

Credit and Finance for MSMEs: The restructuring window was to end on March 31, 2020, but the government would ask RBI to consider extending it till March 31, 2021, finance minister Nirmala Sitharaman said in her Budget speech.

MSME Restructuring Window, RBI, Canara Bank, State Bank of India, SME NPLs, MSME accountsMorgan Stanley wrote recently that given the slowdown, SME NPLs are likely to rise over the next few quarters.

By Hariprasad Radhakrishnan & Shritama Bose

Credit and Finance for MSMEs: While banks may not have restructured all problematic MSME loans post the forbearance given to them by the Reserve Bank of India (RBI), the extension of the restructuring window for a year will delay the recognition of stress in the segment.

The restructuring window was to end on March 31, 2020, but the government would ask RBI to consider extending it till March 31, 2021, finance minister Nirmala Sitharaman said in her Budget speech. “More than five lakh MSMEs have benefitted from restructuring of debt permitted by the RBI in the last year,” Sitharaman said.

The RBI had on January 1, 2019, permitted a one-time restructuring of existing MSME loans that had become stressed to be classified as ‘standard’ without a downgrade in the asset classification.

At least 19 banks have restructured loans to MSMEs worth Rs 15,847.67 crore in 4.32 lakh accounts, the latest quarterly numbers show. So far Canara Bank has seen the highest share of 1.24 lakh accounts with an outstanding of Rs 3,282.83 crore. With a Rs 2,152.78-crore exposure to 84,583 restructured accounts, Bank of India came in second. Data for restructured MSME accounts was not immediately available for State Bank of India (SBI).

Bankers say that while stress has been rising in the MSME segment, the restructuring scheme may actually succeed for some accounts and prevent them from slipping.

KV Raghavendra, CFO, Bank of India, told FE MSMEs will recover over a period of time, but till then forbearance is required. “These are small accounts, most of them below Rs one crore. Even while selecting the borrowers, we have been very prudent. We don’t foresee that all of the accounts would become NPAs. The NPA may go slightly up by 2-3%,” he said.

Morgan Stanley wrote recently that given the slowdown, SME NPLs are likely to rise over the next few quarters. It added PSBs have the highest exposure to SME,and they are seeing high NPA ratios. “Smaller private banks are also likely to show higher NPL ratios in SME if the economy does not pick up over the next few quarters,” the report added.

Jammu & Kashmir Bank, said in its Q3FY20 results, a large number of MSME accounts have been recast by it in the aftermath of imposition of restrictions in the bank’s home state on August 5, 2019. The lender has requested the RBI to let it continue with standard asset classification for distressed MSME accounts in J&K.

Lalitabh Shrivastawa, AVP – BFSI Research, Sharekhan, said that to push growth, an incentive like the recast window is a good tool. “The flow of credit usually slows down to a particular segment that is consuming more capital because of provisioning requirements. At a time when the flow of credit is impacted in the economy, you don’t want to restrict it even further,” he said.

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