RBI monetary policy: New norms on NPA little help for small units

The RBI said on Wednesday it would allow all MSMEs to pay their dues to banks and NBFCs up to 180 days after the due date without these being classified as bad loans

The micro, small and medium enterprises (MSME) sector is unsure if the new norms for their segment on stressed bank loans will help to what extent.

The Reserve Bank (RBI) said on Wednesday it would allow all MSMEs to pay their dues to banks and non-banking financial companies (NBFCs) up to 180 days after the due date without these being classified as bad loans.

Apart from providing banks some more room to reduce their official exposure to the burgeoning of non-performing assets (NPAs), this is expected to help more small businesses escape being classified as defaulters.

“Current banking norms categorise any loan to be a NPA if it has not been paid within 90 days, something a lot of MSMEs in the country fall foul of, given the ongoing liquidity crunch. According to industry estimates, loans to such businesses account for 16-18 per cent of total loans in the banking system and we have told that to the RBI as well.” a senior MSME ministry official said.

MSMEs say they wanted a move to widen their access to credit. “Getting loans has gotten more difficult. RBI’s own data shows that over the past four quarters, credit offtake by MSMEs has remained static or gone down by at least a quarter per cent. Even in the medium-sized enterprises category, credit offtake in the past eight quarters has been going down by one-two per cent,” said Debashish Bandopadhyay, director of policy at the Federation of Indian Small and Medium Enterprises.

The latest move by RBI will also not quicken the pace of small businesses registering. For, most of these are in the informal sector and still have no proper bank account or PAN card, he added.

In February, the central bank allowed banks and NBFCs to temporarily classify their exposures to MSMEs, which had registered under the Goods and Services Tax (GST). Loans of up to Rs 250 million were allowed in the bracket, subject to certain conditions. This had been done to ease the transition of MSMEs into the formal sector. RBI on Wednesday acknowledged that problems over input credit linkages and associated issues had been behind the latest decision to expand the measure to all MSMEs, even those not registered under GST.

“According to our statistics, the share of bad loans among total loans provided to MSMEs stood at 7.55 per cent (of advances) in March 2016. This rose to 8.59 per cent in March 2018. However, it should be kept in mind that despite GST and demonetisation, the rise was so minimal only because of the temporary measures provided by us in February,” said a senior RBI functionary.

“This  is  a welcome move by RBI but small businesses without proper infrastructure are still finding it difficult to register,” said Ganesh Kumar Gupta, president of the Federation of Indian Export Organisations.

Accordingly, the new 180-day NPA norms have kicked in for all MSMEs whose date for payment of bank dues is between September 1, 2017 and December 31, 2018, provided the account was not declared to be NPA as on August 31, 2017. However, the government is set to toughen the norms from January 1, 2019. From this date, RBI has said, the earlier 90-day NPA norm will be brought back, albeit in a phased manner, for MSMEs registered under GST.

“The changes in NPA norms is a huge positive for MSMEs. It meets the long-standing demand, especially the tapering of NPA norms in a phased manner. The move will encourage GST registration,” stated Rajiv Kumar, secretary, department of financial services.