Restructuring Of Advances to MSMEs

E- Panel Discussions on the above topic with 

• Mr. Sugata Datta. Former Advisor & Chief General Manager, Bank of India

• Dr. R Bhaskaran, Former Chief Executive Officer, IIBF

• Mr. Riaz Maniyar, Founder & CEO at easy2lend.com

• Several Founders, Co-Founders, CXO Bankers, CXO Fintech professional & people who participated in the discussions

A circular of RBI published on January 1, 2019 was shared in the FIAKS community. This circular stated that there was a meeting of the Central Board of RBI on November 19, 2018 to discuss on the restructuring of advances to MSMEs (Micro, Small, and Medium Enterprises). This matter was also discussed during RBI’s recent interactions with the banks and other stakeholders. To facilitate meaningful restructuring, RBI decided to permit a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade. To be eligible for the scheme, the aggregate exposure, including non-fund based facilities of banks and NBFCs, to a borrower should not exceed Rupees 250 million as on January 1, 2019. The restructuring has to be implemented by March 31, 2020. A provision of 5% in addition to the provisions already held, shall be made in respect of accounts restructured under this scheme. This was a small extract of the circular that sparked a discussion in the FIAKS community.

A member starts off by sharing that something similar was done in 2009 for corporate accounts. That could be the reason for increasing exposure to stressed accounts which became a major crisis recently. In effect, this is something similar to a waiver. Uniform solution applied across a segment of loans without analysis. Hopefully, this will turn out better this time.

A fellow member says that what happened in 2009 was for SMEs also. In fact, it was for all sectors other than CRE (Commercial Real Estate). At that time, the restructuring was aggressively driven and it was touted widely as one of the reasons because of which India could remain fairly unscathed in the Global Financial Crisis. That exercise of 2009-10 is today being condemned as a major reason for NPAs. That is what has been formulated today for SMEs, who will meet the same fate few years down the line. The cocktail of political push, bureaucratic complicity, and industrial jugaad is very toxic.

An intellectual in the community adds that the apprehension of RBI is such that if these exercises are left to the banks’ discretion, it could result in doctoring of NPA. Hence, it micromanages credit. What it should do is tighten the scrutiny of NPA and take action if NPA data is incorrect. Simultaneously, it should give freedom to banks to nurse or help accounts which are overdue for genuine reasons. If RBI continues to micro-manage, it will be always one or the other form of waivers. It is time to delineate stability agenda and allow banks to manage credit

Ms. Anuradha Panditrao, Founder of Forum of Industry & Academic Knowledge Sharing (FIAKS) acknowledges and thanks the contributions of the FIAKS Community members in creating intellectual pull by participating in the discussions.