Credit and Finance for MSMEs: The Reserve Bank of India (RBI) on Thursday extended the restructuring of MSME debt until March 31, 2021, “provided the borrower’s account was classified as standard with the lender as on March 1, 2020,” according to the statement by the central bank on developmental and regulatory policies to boost liquidity support for financial markets. “Recognising the need for continued support to MSMEs’ meaningful restructuring, it has been decided that, in respect of MSME borrowers facing stress on account of the economic fallout of the pandemic, lending institutions may restructure the debt under the existing framework,” RBI said adding that this restructuring shall be implemented by March 31, 2021.
The government had earlier extended the one-time restructuring to December 31, 2020, from March 31, 2020, following Finance Minister’s Nirmala Sitharaman’s announcement in the budget that the government had asked the RBI to extend the same. “More than five lakh MSMEs have benefitted from the restructuring of debt permitted by RBI in the last year,” Sitharaman had said in her speech.
“MSMEs currently don’t have liquidity with them. They are looking for restructuring their old term loans on machinery etc. While Central government PSUs and departments somewhat pay for goods bought but state PSUs are not at all interested to pay MSMEs particularly departments like electricity. Their standard reply is that they don’t have funds to make payments,” Pankaj Kumar, President, Indian Industries Association told Financial Express Online.
The existing framework entailed the aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower should not be beyond Rs 25 crore as on January 1, 2020. Also, that the borrower’s account was in default but was a ‘standard asset’ as on January 1, 2020, and continues to be classified as a ‘standard asset’ till the date of implementation of the restructuring, according to an RBI notification in February this year. Moreover, one-time restructuring of existing loans to MSMEs also required the restructuring of the borrower account is implemented on or before December 31, 2020. In addition, the borrowing entity is GST-registered on the date of implementation of the restructuring except those that are exempt from GST-registration.
The restructuring is likely to further help small businesses that are particularly impacted due to the Covid pandemic. MSME Minister Nitin Gadkari had in May said that the government is likely to restructure 25 lakh MSME loan accounts by December this year up from 6 lakh till March 31. The government had also rolled out a subordinate debt scheme to provide Rs 20,000 crore guarantee cover to two lakh micro, small and medium enterprises as part of the Atmanirbhar Bharat campaign. This also had a sub-debt facility to the promoters of those operational MSMEs that are distressed or have become non-performing assets (NPAs) as on 30 April 2020.