Few Takers For MSME Restructuring Scheme Even As Deadline Looms

The one-time restructuring permitted for small business, without an asset classification downgrade, was first introduced in January 2019 and later extended after the Covid-19 crisis hit. Unlike the forbearance for large businesses, where the deadline for approvals ended in December, banks were allowed to approve restructuring for small businesses until the end of March 2021.

According to four senior bankers who spoke with BloombergQuint, very few borrowers have chosen to restructure their debt under the scheme. Fear of higher rates, weaker credit standing and, most recently, the relief provided by the government’s emergency credit line have prevented large scale restructuring. As such, bankers see little merit in extending the scheme, although industry associations differ.

India’s largest lender State Bank of India saw less than 2% of its Rs 2.93 lakh crore MSME loan book go for restructuring, said CS Setty, managing director at the bank.

“Most MSME borrowers have stayed away from restructuring as this could affect future borrowing prospects,” Setty said. “Banks have provided additional credit lines and the government as well has given an emergency line which has helped companies tide over the Covid period.”

According to the head of another large state-run bank, who spoke on condition of anonymity, the MSME restructuring scheme had seen only 1-2% of outstanding loans being restructured in previous years. Due to the Covid-19 pandemic, the requests for restructuring have gone up but are still below what lenders were anticipating in March 2020, the banker said.

Kerala-based lender CSB Bank Ltd., too, saw only 2% of its outstanding MSME loans opt for restructuring.

“We feel that for our borrowers the ECLGS scheme helped them. We had also provided a funded interest term loan facility to some, where the borrowers could repay interest due at a later date,” said CV Rajendran, the lender’s managing director and chief executive officer. “As things stand the stress due to Covid-19 has been lower than expected. But we continue to be cautious while reviewing our portfolio.”

The banking sector is unlikely to approach the RBI for a further extension on the restructuring scheme going ahead, the bankers quoted above said. According to Setty, the two extensions have mostly covered all stressed MSMEs and a continuation of the scheme may not be needed.

The experience for non-bank lenders has been similar. According to Raman Agarwal, chair-NBFCs at the Centre for Economic Understanding, the restructuring portfolio for non-bank lenders has also been “insignificant”.

“Obviously there has been a slight rise in deterioration of asset quality due to Covid-19,” Agarwal said. “But there’s nothing alarming as far NBFCs are concerned. The RBI’s six-month moratorium, the government’s emergency scheme and timely financial support provided by lenders have helped the MSME segment tide through their problems, reducing their dependence on restructuring debt.”

Under the scheme, banks and other lenders are allowed to restructure MSME loans up to Rs 25 crore, without attracting the non-performing asset tag. Lenders are required to additionally provide only 5% toward such restructured loans, compared with the 10% requirement for other loan segments.

As of January 2021, total bank credit to the MSME sector stood at Rs 5 lakh crore, according to monthly data available with the RBI. The latest edition of the MSME Pulse report, released by TransUnion CIBIL and SIDBI, states that banks and non-bank lenders have together extended loans worth Rs 16.21 lakh crore to MSMEs with outstanding loans up to Rs 25 crore, as of September 30, 2020.