The micro, small and medium enterprises (MSMEs) are always vulnerable in a challenging economic environment and the double whammy of demonetisation of big currency notes and the implementation of Goods and Services Tax (GST) had only compounded their problems. There was no support from the banking industry. The reason being the banking system was facing its own asset quality challenges to indulge in safe lending, while RBI's clean-up exercise (for banks) further aggravated their challenges.
Currently, the banks' MSME exposure stands around Rs 15 lakh crore as against the total lending of Rs 80 lakh crore. There is now a clamour for more sops for MSMEs, especially lowering the risk weights for the sector, which will release more bank capital for such funding. Similarly, the government wants Reserve Bank of India (RBI) to relax the prompt corrective action (PCA) framework norms, where 11 public sector banks (PSBs) are under intensive monitoring of RBI in terms of restricted lending. The MSMEs are always pampered by the government as they generate employment and helps in inclusive growth. But MSMEs pampered in the past could create assert quality issues in future. Take a look:
1. Defaulting MSME promoters allowed to bid for their own assets under the bankruptcy Code
While the defaulting promoters of large companies like Essar, Jaypee are barred , the government amended the Section 29A of the bankruptcy Act to provide relief to MSME promoters. In June this year, MSME promoters, who defaulted on loans, were allowed to bid for their own assets under the bankruptcy code. Given the lack of investors' interest, the promoters will get back their company at a huge discount.
2. Forbearance and restructuring
RBI has banned all restructuring schemes. In fact, a single day default of loans over Rs 2,000 crore calls for finding out a resolution within a time-bound manner else the door opens for bankruptcy proceedings. In February this year, the RBI had announced a special forbearance for GST-registered MSMEs by extending the NPA classification period from 90 days to 120 days. This facility was given to MSMEs with aggregate loan of Rs 25 crore.
3. Collateral free loans
The banks are not allowed to take any collateral for loans up to Rs 10 lakhs.
4. Part of priority sector
The MSME loans of less than Rs 25 crore are included in calculating the banks' priority sector exposure. This has resulted in increased lending to MSME sector.
5. Dedicated vertical For Resolution
The Project Sashakt, which was created under the guidance of interim finance minister Piyush Goyal, has suggested banks to create a dedicated vertical for resolving the SME loans upto Rs 50 crore. It asked banks to create an empowered internal SME steering committee for validation of such schemes.
6. Specialized MSME branches
The banks have been asked to set up at least one specialized branch in each district.