MSMEs get breather from choking loans; here’s govt’s plan to free them up from immediate repayment

FE Online
Finance minister Nirmala Sitharaman, Nirmala Sitharaman

Nirmala Sitharaman on Wednesday said out of 5.53 lakh MSME accounts, 5.28 lakh loans have been restructured, ET Now tweeted. The Finance Minister in a media briefing following a meeting with PSU Banks in Delhi said the restructuring of the rest of the MSME accounts will be done by March 15. The Reserve Bank of India had earlier this month extended the loan restructuring timeline for MSME accounts from earlier March 31, 2020, to December 31, 2020, without downgrading the asset classification to standard accounts.

Nirmala Sitharaman had said in her budget speech that over 5 lakh MSMEs have benefited from the restructuring of debt permitted by the RBI in the last year. The one-time restructuring exercise is likely to give relief to MSMEs as it would help them improve their balance sheets in order to raise more capital given the challenges small businesses face in securing affordable credit.

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The exercise will also give relief to banks as at least 19 banks have restructured advances to MSMEs amounting to Rs 16,746.83 crore in 4.55 lakh accounts, Financial Express had reported. CARE Ratings senior director Sanjay Kumar Agarwal had said that restructuring of loans is similar to that provided to the textile industry several years ago, after which the companies were able to perform. "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 per cent for the segment as of now," he said.

To further address the working capital issue among MSMEs, Sitharaman had proposed a subordinate debt scheme for MSMEs wherein the debt will be provided by banks. This debt would be counted as quasi-equity and "would be fully guaranteed through the 27 Credit Guarantee Trust for Medium and Small Entrepreneurs," the minister had said in her budget speech.