Relaxation on NPAs for MSMEs by RBI

In a move to help the micro, small and medium enterprise (MSME) sector adjust to a formalised business environment under the Goods and Services Tax (GST) regime, the Reserve Bank of India gave them an extension of up to 180 days to clear their loans to banks.

"It has been represented to us that formalisation of business through registration under GST had adversely impacted the cash flows of the smaller entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and NBFCs," the central bank said in a press release.

Under the new norms, MSMEs shall continue to be classified as a standard asset in the books of banks and NBFCs subject to amount from the borrower overdue as on September 1, 2017 and payments from the borrower due between September 1, 2017 and January 31, 2018 are paid not later than 180 days from their respective original due dates.

Presently, banks and NBFCs in India generally classify a loan account as Non-Performing Asset (NPA) based on 90 day and 120 day delinquency norms, respectively.

RBI Deputy Governor N.S. Vishwanathan said the formalisation of business through registration under GST adversely impacted cash flows of the smaller entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and non-banking financial companies (NBFCs).

"As a measure to support their transition to a formalised business environment, it has been decided that for the GST-registered MSMEs... the amounts overdue as on September 1, 2017, and payments due between September 1, 2017, and January 31, 2018, be allowed by banks and NBFCs to be paid not later than 180 days from their original due date, without a downgrade in asset classification," he said.

The RBI said: "In the light of feedback received from various stakeholders and in line with the increasing importance of the services sector in our economy, it has been decided to remove the currently applicable loan limits of Rs 5 crore and Rs 10 crore per borrower to MSME (Services), respectively, for classification under priority sector."

Accordingly, all bank loans to MSMEs, engaged in providing or rendering of services as defined in terms of investment in equipment under MSME Development Act, 2006, shall qualify under priority sector without any credit caps, the central bank said.

In order to achieve level-playing field in the priority sector lending guidelines for banks, the RBI said: "It was stipulated in April, 2015, that post 2018 (after three years from the issuance of guidelines), the sub-targets for lending to small and marginal farmers and micro enterprises shall be made applicable for foreign banks with 20 branches and above."

"It has been decided that the sub-target of eight per cent of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE), whichever is higher, will be made applicable for lending to the small and marginal farmers for foreign banks with 20 branches and above from FY 2018-19," it added.

Further, the sub-target for bank lending to the micro enterprises in the country of 7.50 per cent of ANBC or CEOBE, whichever is higher, will also be made applicable for foreign banks with 20 branches and above from FY 2018-19, the RBI added.