Banks looking to restructure major chunk of Rs 2-trn MSME loans by March

With the deadline of March 31 nearing for restructuring micro, small and medium enterprise (MSME) loans under the special dispensation provided by the Reserve Bank of India (RBI), banks are looking to restructure a major chunk of the Rs 2 trillion loans identified under the scheme. 

According to rough estimates suggested to the government by the banks a few months ago, MSME loans of about Rs 2 trillion were identified to be restructured by March 31. According to sources, banks hope to meet at least 70 per cent of this target.

In January 2019, the Reserve Bank of India (RBI) allowed a one-time restructuring of existing MSME loans that have defaulted, but are not non-performing as on January 1. 

This will be allowed provided the total fund and non-fund based exposure to such a borrower is less than Rs 25 crore.

“According to assessment done by individual banks, the combined restructuring amount was estimated around Rs 2 trillion. More than 50 per cent of the target was met till November-December. This quarter, banks are expecting to get more proposals for restructuring,” said a top official of a public sector bank.

Notably, while a number of banks had been able to restructure a substantial portion of the loans, some were asked to identify potential candidates and consider restructuring MSME accounts.

“In whichever case, we are seeing a potential and reaching out to promoters for restructuring. Banks are hopeful of meeting the target of Rs 2 trillion,” said a senior official of another public sector bank.

According to a statement by the Press Information Bureau, dated December 28, 2019, a total of 5,38,440 MSME loan accounts have been restructured as per terms of the RBI’s circular dated January 1. Of this, 1,65,104 accounts have been restructured since October, 2019.

The MSME sector has been reeling from stress for quite some time. 

According to the latest data from TransUnion Cibil, credit growth in the micro (less than Rs 1 crore), small (Rs 1-15 crore) and medium (Rs 15-50 crore) segments showed a year-on-year growth of 7.7 per cent, 4.6 per cent and 1.9 per cent, respectively, for the period between September 2018 and September 2019. At the same time, NPA rates increased from 11.7 per cent in September 2018 to 12.2 per cent in September 2019.

Apart from one-time restructuring, the government has been announcing a slew measures to improve credit flow to the sector. 
In order to address the working capital needs of MSMEs on account of stress arising from delayed payments, PSBs are offering up to 25 per cent enhancement in working capital limits for standard MSME accounts as a standby line of credit. 

Banks have also launched an MSME outreach initiative for restructuring stressed standard assets. 

In 2018, the government started a scheme to sanction loans of up to Rs 1 crore via a dedicated portal, with a turnaround time of 59 minutes. The interest rate on such assistance starts at eight per cent.

The stroy so far
  • Market share of public sector banks in MSME lending has fallen to 48.2 per cent in September 2019 from 51.2 per cent in September 2018
  • MSME NPA rates increased from 11.7 per cent in Sep 2018 to 12.2 per cent in Sep 2019
  • Banks met more than 50 per cent restructuring target by December

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