Certain MSMEs Can Now Repay Loans Within 180 Days Without Becoming NPA
GST registered MSMEs with loans up to Rs 25 crore can delay repayment by up to 180 days, says RBI
The Reserve Bank of India today said it will allow certain small businesses to delay their loan repayments up to 180 days from the due date, twice the mandated period, without being categorised as non-performing assets.
“The formalisation of business through registration under Goods and Services Tax adversely impacted cash flows of the smaller entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and non-banking financial companies,” said the central bank’s regulatory guidelines released along with the monetary policy statement.
This relief would apply to GST-registered micro, small and medium enterprises which were standard accounts as on Aug. 31, 2017 and where the outstanding loan as on Jan. 31 didn’t exceed Rs 25 crore. These MSMEs can delay the repayment of their overdue amount as on Sept. 1, 2017 and the payments due between Sept. 30, 2017 and Jan. 31, 2018.
“This is a one-time dispensation specifically targetted at those companies which are struggling due to GST implementation,” said PK Gupta, managing director, retail & digital banking at State Bank of India. “This will have a marginal impact and is a temporary relief for these borrowers.”
The data suggested some pain among MSMEs which were in the transition phase of adopting GST, RBI Deputy Governor NS Vishwanathan pointed out during the press conference. That made it necessary that these businesses be given some support, he added.
The central bank gave a similar relief to smaller borrowers after demonetisation. “Once the dispensation period was over, we saw some spike in the NPAs coming from the MSME segment since companies had to come back to the 90-day repayment cycle,” said Rajkiran Rai, managing director and chief executive officer at Union Bank of India.
We will have to plan it better this time around, so that there is not too much of a spike. Typically, we see higher NPAs in the MSMEs with loans ranging between Rs 10 crore to Rs 150 crore.Rajkiran Rai, MD & CEO, Union Bank of India
The RBI also said that caps on lending to MSMEs under the priority sector category would be removed to ensure that all such loans given by banks to the sector qualify. Currently, loans up to Rs 5 crore for every micro and small enterprise and Rs 10 crore for every medium enterprise qualify as priority sector lending.
“By allowing us to have more MSME loans classified under PSL, we are sure it is going to benefit the banks,” SBI’s Gupta said. “We are still assessing the impact.”
The regulator will also ensure that foreign banks with 20 branches or more will be subjected to priority sector sub-target of lending 8 percent of their adjusted net bank credit to small and marginal farmers and 7.5 percent to MSMEs.
The decisions follow the government’s announcement that banks must improve credit flow to the MSMEs. While presenting the Rs 2.11 lakh crore bank recapitalisation plan, the government said it will improving access to credit for MSMEs.