The Reserve Bank of India has temporarily allowed small businesses, even those not currently registered under the Goods and Services Tax regime, to delay their loan repayments up to 180 days from the due date without being classified as a bad loan.
This an extension of the relief that RBI had announced in February this year. At the time, it was applicable only for micro small and medium enterprises that were GST-registered.
Small businesses which were standard accounts as on Aug. 31, 2017 and where outstanding credit till Jan. 31,2017 did not exceed Rs 25 crore, will be eligible for the relief. “Accordingly, eligible MSME accounts, which were standard as on Aug. 31, 2017, shall continue to be classified as standard by banks and NBFCs if the payments due as on Sept. 1, 2017 and falling due thereafter up to Dec. 31, 2018 were/are paid not later than 180 days from their original due date,” the RBI said in its developmental and regulatory guidelines released along with its bi-monthly monetary policy.
This was done with a view to ease the transition of MSMEs to the formalised sector post their registration under the GST.RBI
Banks and non-banking financial firms normally have to classify an account as a non-performing asset if loan repayments haven’t been made for 90 days. Small business have now been allowed twice the mandated period.
These businesses were among the worst hit by the twin shocks of demonetisation and GST implementation, leaving them cash strapped. As of December 2017, the NPA rate for entities that took up to Rs 10 crore of loans was at 11.3 percent, according to TransUnion Cibil’s MSME Pulse report.
“The MSME industry has been facing several issues after demonetisation and GST, so this will surely act as a relief for them. The default rate is very high in this segment, so any extension on NPA classification will be useful,” said Rajkiran Rai, managing director and chief executive officer of Union Bank of India. “We see this as a short-term breather and not some long-term policy action. Whether this will push more lending to the MSME sector is something we have to wait and watch.”
“At last count, the gross NPA ratio was closer to 10-11 percent in the MSME segment. This dispensation will bring down the NPA ratio by one percentage point. Roughly Rs 12,000 crore worth loans will benefit from this,” said Mohammad Mustafa, chairman and managing director of Sidbi.
The benefits will eventually be phased out. From 2019, the duration for which repayment can be delayed will be cut down to 90 days past the due date, the RBI’s guidelines said.
The central bank also urged businesses to get GST-registered as soon as possible. MSMEs that fail to do so before Dec. 31, 2018 will no longer get the relief for repaying dues from 2019. Such accounts “shall immediately revert to the 90 day norm,” RBI said.