The one-time restructuring can now be done without a downgrade in asset classification to standard accounts of GST-registered MSMEs in default as on January 1, 2020.
By Hariprasad Radhakrishnan
RBI on Thursday extended the restructuring window for MSME loan accounts till December 31, 2020, which was supposed to expire in March 2020. The one-time restructuring can now be done without a downgrade in asset classification to standard accounts of GST-registered MSMEs in default as on January 1, 2020.
“The restructuring under the scheme has to be implemented latest by December 31, 2020,” the central bank said in its ‘Statement on Developmental and Regulatory Policies’ accompanying the monetary policy, adding that detailed guidelines would be released shortly.
This is a relief to banks as the latest available data released by the lenders shows that at least 19 banks have restructured advances to MSMEs worth Rs 16,746.83 crore in 4.55 lakh accounts. CARE Ratings senior director Sanjay Kumar Agarwal said the restructuring window offered to the MSMEs is akin to that provided to the textile industry several years ago, after which the companies were able to deliver. “The NPA figures will not deteriorate, as FY22 is when the results will show up. It all depends on how the economy will perform in that period. We expect some relief in the gross NPA from the existing 5.5-6% for the segment as of now,” he said.
Finance minister Nirmala Sitharaman, in her Budget speech, had said the government had asked RBI to extend the restructuring window until March 31, 2021. The UK Sinha expert committee report on MSMEs, released in July 2019, said bankers were hesitant to restructure the MSME accounts, even though there is no need to make immediate provisions. Apprehension arising from internal staff accountability exercise triggered by the classification of any account as NPA and a concomitant fear of investigative agencies, and the fact that there is no visibility of future viability of MSME accounts had led to the hesitation. The report had recommended to upgrade MSME accounts to standard after six months of satisfactory operations, instead of one year at present.
To ensure better rate transmission, the central bank also linked all new floating rate loans by banks to medium enterprises to external benchmarks including the policy repo rate, or any benchmark interest rate produced by Financial Benchmarks India, including treasury bill rates effective April 1, 2020. Previously, all fresh floating rate personal or retail loans and floating rate loans to micro and small enterprises (MSEs) extended by banks were linked to external benchmarks effective October 1, 2019.