MSME Debt Restructuring Only After Examining Viability, Says RBI’s Das

The Reserve Bank of India Governor Shaktikanta Das met representatives from micro, small and medium industries to note their views on the recent loan restructuring scheme announced by the central bank.

The views and demands of small businesses on the issue have been noted, Das told reporters after the meeting.

Last week, the RBI announced a one-time restructuring scheme for small borrowers who have taken loans of up to Rs 25 crore from banks and non-bank lenders. Under the new scheme, accounts in the micro, small and medium enterprises segment which are in default, but are still standard as on Jan. 1, can be restructured once, without any downgrade on their asset classification.

Das said that banks have been asked to look into the viability of individual MSMEs before restructuring loans. The effort, according to him, is to see that maximum number of such businesses get the benefit, but while extending the benefit, the viability aspect needs to be considered.

Banks, he said, have been asked to take the matter to their respective boards, and come with guidelines to check the viability of individual loans and also monitor such restructured assets.

On being asked if the MSME loan restructuring scheme is a retrograde step, Das said that the central bank has examined the situation very carefully and MSMEs have an important role in the economy. "The Reserve Bank, in its wisdom, after considering all aspects thought it prudent in the overall interest of the economy, banks, MSMEs to come out with those guidelines," Das said.

Das also said that he would be meeting representatives from non-banking financial companies in Mumbai on Tuesday. The meeting, he said, has been called to understand NBFCs' perspective on various issues, including liquidity. “At the same time I must also add RBI would not like a situation where liquidity becomes a kind of loose money."

Any infusion of liquidity will have to be carefully considered, and has to be need-based, Das said, adding that caution and care have to be exercised by the RBI so that excess liquidity does not create adverse consequences.

The RBI had increased its open market operations by Rs 10,000 crore in December and had announced an OMO of Rs 50,000 crore for January.

Talking about the non-performing assets, Das said that there has been a reduction in bad loans of the banking sector, and public sector banks in general. "There is a considerable amount of improvements which have to be sustained if banks have to fulfil their responsibility and if some of the banks have to become healthy," he said.

The central bank, according to Das, has not given any target to banks for reducing their NPAs. "So Reserve Bank of India will listen to everybody, Reserve Bank of India will interact with everybody including the government, but the final decision will be taken by the RBI in an objective manner to the best of its judgement," Das said.

The governor also said that he has had consultations with various stakeholders to look at governance reforms that can be brought in the working of state-owned banks. "We do not want to create a framework which imposes restriction or throttle the functioning of banks," he said.

Responding to a query on whether the government has sought an interim dividend from the RBI, Das said that a "lot of correspondence goes on between the government and the Reserve Bank, a lot of discussions do take place, whether there is an individual letter or not, that is not really relevant."

A Reuters report, quoting unnamed officials, said that the government has sought an additional dividend of Rs 30,000-40,000 crore this financial year to meet its fiscal deficit target.

Das’s comments come amid the Narendra Modi government’s efforts to alleviate farm distress in the country.

In the past month alone, three Indian states—Assam, Chhattisgarh and Madhya Pradesh—have announced schemes to waive farm loans. They join a growing list of state governments which have resorted to such waivers in the past two years.

The central bank has not taken a decision on the interim dividend payment yet, Das said.

While a lot of discussions taken place between the RBI and the government, no specific communication has taken place regarding this, he added.

Reuters, in a report today, said that the RBI is likely to transfer an interim dividend of Rs 30,000-40,000 crore to the government by March, citing sources.

In August, the RBI had said that it would transfer Rs 50,000 crore as surplus to the government in its financial year ended June 30. RBI follows the July-June cycle as its financial year.

Economic Affairs Secretary Subhash Chandra Garg told reporters in August itself that the RBI had transferred Rs 10,000 crore as interim dividend in March, and the government will receive the remaining amount this fiscal.

The health of India’s banks and managing their non performing assets remains the main focus for the central bank, Das said.

“The NPAs are being monitored on a daily basis,” he said, adding that improvement has been noticed in bad loan levels.

The RBI is also in consultation with stakeholders to create a governance framework of public sector banks without putting impediments in the working of banks, he said.

Das is slated to meet representatives from the non banking financial companies industry tomorrow, to take a stock of the liquidity crunch plaguing the sector after infrastructure sector lender IL&FS started defaulting on its payments.

“The liquidity has been assessed time and again”, he said, adding that the RBI has already announced OMOs worth Rs 60,000 crore.

Shaktikanta Das met associations of the small and medium enterprises sector today to get their point of view on the restructuring announced, the governor said today.

Here are the key highlights:

• Have noted demands made by MSMEs
• Banks have been asked to look into viability of individual MSMEs
• Banks have been asked to take it to their boards whether it's viable to restructure MSME loans

The central bank 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.

Read more.

RBI has seen a lot of turmoil over the last nine months or more, where the tensions between the RBI and the central government rose due to disagreements on a number of issues such as banking regulations and the RBI’s capital reserves. The tensions led to the central bank publicly calling out the government on interference and culminated with the resignation of the then governor Urjit Patel.

Shaktikanta Das was appointed as Patel’s replacement the very next day.

Here are some of the key issue of contention between the government and the RBI:

• Lending norms for the small and medium enterprises.
• Regulations under the Prompt Corrective Action
• RBI’s excess capital reserves

On Jan. 2, the RBI said that it will form an expert member committee for the MSME sector led by former SEBI Chairman UK Sinha.

Shaktikanta Das, the less-than-a-month-old Reserve Bank of India Governor, is slated to speak to the press at 1 p.m. at the central bank’s Delhi headquarters.

The reason for the press conference has not been revealed.