Banks want easier NPA norms, special window for SMEs

Banks are pitching for a special window for lending to small and medium enterprises (SMEs), which will be akin to the refinance facility opened by the Reserve Bank of India for financing mutual funds and non-banking finance companies in dire need of funds.

In addition, the lenders want changes in the norms related to non-performing assets (NPAs) to help them tide over the problem of rising defaults in the small scale sector.

According to a source close to the development, Indian Banks’ Association (IBA) will approach RBI with these proposals after its meeting with SME representatives on Wednesday.

“The sector has been badly hit by the economic slowdown and units are facing liquidity pressure due to substantial debt and low cash accruals. This is leading to delays in repayment to banks and overdrawn limits,” said a banker.

The cash flows of SMEs are under pressure as recessionary conditions in many countries are affecting exports and the slowdown in Indian manufacturing has hit local demand.

“Though some of them have been demanding a moratorium for a year, it may not be possible. But we will take up some of the issues issues which are beyond the purview of IBA,” the banker added. For instance, sources pointed out, some of the banks are pushing for a relaxation of the non-performance asset provisioning norms from 90 days at present to 180 days.

“Based on the suggestion from the sector, we will work out a proposal for RBI on the total amount required and the disbursal mechanism through the special window so that it is beneficial for both the banks and SMEs,” said a banker who will be present at the meeting tomorrow.

Bankers will meet representatives from sectors such as textiles, auto parts and jewellery.

In the mid-term review of the annual policy statement in October, RBI had suggested that banks pursue loan restructuring proposals from SMEs though it had left it to lenders to decide on a case-by-case basis. RBI has already made a refinance facility for banks to meet their liquidity requirements. For cash-strapped MFs and non-deposit taking NBFCs, banks can raise resources through the repo window.