Banks may go slow on MSME loan recovery

The government has asked the state-owned lenders to go slow on the recovery of loans from small businesses as the slowing economy may have limited their capacity to repay the debt on time.

India’s prolonged consumption slowdown has impacted demand not only for homes and automobiles but also consumer goods and those produced by micro and small sectors.

The move comes after the Reserve Bank of India last month tried to make loan rates cheaper for them after linking it to an external benchmark such as repo rate.

The RBI had also issued a one-time restructuring of existing loans of MSMEs up to Rs 25 crore that was in default but had not become a non-performing asset as on January 1, 2019.

Now, the Centre has asked the banks not to declare MSME loans below Rs 5 crore as non-performing assets if they have not been repaid in time, according to government sources. The finance ministry has also asked state-run banks to review Mudra loans amid fears of a rise in NPAs in these accounts. The NPA on Mudra loans by public sector banks, which also included regional rural banks, jumped to Rs 17,250.73 crore as on March 2019. In March 2018, loans worth Rs 7,277.32 crore of public sector banks had turned bad.

At the same time, the lenders have also been asked to ensure unhindered credit flow to micro, small and medium units.

Last year, the government also permitted promoters of stressed MSMEs who are not wilful defaulters to bid for bad assets under the Insolvency and Bankruptcy Code.

According to an RBI data, credit flow to the industry has gone up of late but most of it has been disbursed to large players and MSMEs have not benefited as much.

Last year, Prime Minister Narendra Modi had launched a scheme for MSMEs to avail of loans in 59 minutes in order to help the sector, which is the second-largest employer in India after agriculture.

The Budget for 2019-20 allocated Rs 350 crore for the sector under the Interest Subvention Scheme for 2% interest subvention for all GST registered MSMEs on fresh or incremental loans.