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MSMEs tell RBI to extend loan moratorium, warn bad debt can rise to 35%

MSMEs body says the industry is not back on its feet yet and needs more support from the regulator to overcome the current crisis

Nirbhay Kumar | August 3, 2020 | Updated 14:02 IST
MSMEs tell RBI to extend loan moratorium, warn bad debt can rise to 35% 
MSME loan moratorium

KEY HIGHLIGHTS

  • MSMEs want moratorium on loans to be extended for another 3 months, one-time restructuring of stressed accounts and lowering of interest rate
  • Issues such as non-availability of labour, delayed payments and low demands have worsened the situation
  • While RBI has projected NPAs to rise to 14.7% in worst case scenario, the MSME industry body CIA fears it can go up to 35%
  • As of 23 July, public sector and private banks together disbursed Rs 82,065.01 crore to the eligible borrowers under the Emergency Credit Line Guarantee (ECLG) scheme

Ahead of RBI's Monetary Policy Committee (MPC) meeting, micro, small and medium enterprises (MSMEs) have called for a few measures, including extension of moratorium on loans for another 3 months, one-time restructuring of stressed accounts and lowering of interest rate.

Arguing for the relief measures, SME Chamber of India President Chandrakant Salunkhe said that June GST collections cannot be a barometer for the health of the sector as a large number of firms had paid taxes during the month for billings done in the previous months of February, March and April, 2020.

The gross GST collection in the month of June was Rs 90,917 crore with many experts seeing the number as signs of economic recovery.

Also read: MSMEs stare at huge job losses, soaring NPAs; cash shortage threatens survival

"We have requested the RBI for extending the relief. The business activities contracted sharply during the April-June period. GST numbers for the month of June does not reflect the ground reality. Until normalcy returns, government should extend all benefits to the sector. The moratorium on loans must be extended by three more months. Additionally, one-time restructuring of loans should be allowed and interest rates be brought down," Salunkhe said.

He claimed that non-banking financial companies (NBFCs) charge interest rates ranging from 14% to 28% depending on the types of loans, and sought RBI intervention.

Convenor of Consortium of Indian Associations (CIA) KE Raghunathan said that MSME sector had been worst-hit due to the pandemic with issues such as non-availability of labour, delayed payments and low demand worsening the situation.

"We request the RBI and Finance Minister Nirmala Sitharaman to immediately announce extension of loan moratoriums along with exemption of interests till March 31, 2021 as there is no possibility in sight for any EMI payments," Raghunathan demanded.

Also read: SBI bad loans to MSMEs shoot to 15%; writes off Rs 14,000 cr in 5 years

While RBI itself has projected the non-performing assets (NPAs) to rise to 14.7% in the worst case scenario by the end of current fiscal, the MSME industry body CIA fears the bad debt to soar to 35% by December 2020.

"The situation in the field is grim and needs immediate relief apart from merely extending loan support to few eligible borrowers," the CIA Convenor said.

With the industry facing survival crisis, the government had in May announced a slew of measures to support it, including upto Rs 3 lakh crore additional credit to the sector at concessional interest rate. The Centre has also widened the definition of MSMEs to cover more firms for benefits being extended under various schemes.

As of 23 July 2020, public sector and private banks together had disbursed Rs 82,065.01 crore to the eligible borrowers under the Emergency Credit Line Guarantee (ECLG) scheme.

Also read: COVID-19 pandemic may hit tourism, MSME, aviation sectors hard, says RBI survey

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