Terming the new one-day default recognition mandated by the Reserve Bank as "draconian" for small and medium enterprises, Niti Aayog vice-chairman Rajiv Kumar today called for longer grace period for these units.
Terming the new one-day default recognition mandated by the Reserve Bank as “draconian” for small and medium enterprises, Niti Aayog vice-chairman Rajiv Kumar today called for longer grace period for these units. According to the RBI’s revised framework on resolution of stressed assets, issued on February 12, lenders are required to report a missed interest payment on day one. “I personally feel that this one-day NPA recognition limit is not right. I think it should be longer, especially for the SME sector,” Kumar told reporters on the sidelines of an event at BSE here this evening.
“Very often they (SMEs) don’t get payments from their clients. Such payment delays could mean that they can’t meet the norms…I think that’s draconian.” Owing to certain stringent criterion in the new framework, lenders had asked for some leniency and extend this to 30 days but Reserve Bank has refused to relax its February 12 circular.
Earlier this month, RBI deputy governor NS Vishwanathan had defended the February 12 resolution framework and indicated that there will be no relaxation to the new set of rules. Under the new framework, lenders will have to implement a resolution plan to revive a defaulting company within 180 days. If the plan is not implemented within the stipulated time, the account will have to be referred to bankruptcy court for resolution.
“Six months is enough time to find some resolution. I think our entrepreneurs must recognise that they must take charge of both upside and the downside risks. It can’t be that only banks have all the downside risks,” Kumar added. With no leniency from the RBI on its revised framework, bankers say they will be more cautious and risk-averse to long-term funding, especially to the infrastructure sector.