RBI Forms Expert Committee For MSME Sector Led By UK Sinha

The Reserve Bank of India said it will form an expert committee to identify the issues and propose long-term solutions for economic and financial sustainability of small businesses.

The panel will be headed by UK Sinha, former chairman of Securities and Exchange Board of India, according to a press statement published on the central bank’s website. The eight-member committee will also include government representatives, bankers and academicians.

Here’s what the panel will do:

• The committee will review the existing institutional framework for the micro, small and medium enterprise sector and study the structural issues.
• It will examine the bottlenecks affecting the timely credit.
• The panel will look at ways to leverage technology in accelerating growth.

This comes after the banking regulator introduced a one-time restructuring scheme for MSME borrowers with individual loans below Rs 25 crore. The scheme allows for loan terms—such as interest rates and tenures—to be revised without a change in asset classification from standard to non-performing. To be sure, such restructuring was widely misused for evergreening of bad corporate loans in 2011-13.

The central bank, in its financial stability report released on Dec. 31, highlighted the potential risks emerging from the MSME sector. The performance of public sector banks in the MSME sector lags private peers and non-bank lenders, according to the RBI’s report. This, it said, calls for improved credit appraisal skills.

The report said 20 percent of the exposure of public sector banks is to the lowest-rated MSMEs where the default risk is high. Moreover, public sector banks under the RBI’s prompt corrective action framework, which puts operational restrictions on weak lenders, have seen strong loan growth towards small borrowers, leading to concerns over lowering of risk standards.