RBI to Consider Viability of MSME Loan Restructuring, Says Shaktikanta Das

The Reserve Bank of India has introduced a one-time loan restructuring scheme for the micro, small and medium enterprises (MSMEs) with loans up to INR 25 crore, with effect from January 1, 2019. To address the further concerns of the individuals from the sector, the RBI governor Shaktikanta Das held a 2-hour meeting with the representatives of MSME organizations to discuss the pain points.

Addressing the media post the meeting, Das emphasized that the banks and MSMEs need to work together to effectively implement the restructuring scheme. Earlier during the announcement, the RBI has directed the banks/NBFCs to formulate a policy for viability assessment of the stressed accounts, the concerns regarding which seemingly remained the major focus of the meeting.

Examining the Viability

"The banks have been asked to look at the viability of individual MSME before making the restructuring scheme applicable to MSMEs. The default is to see that maximum unit get benefitted but while extending the benefits, the viability aspect also needs to be considered because, without that, it would not be possible to implement the restructuring scheme," Das said.

Viability is among the key parameters for the scheme implementation to judge the application. Banks are supposed to present their research to the board and formulate a policy for examining the viability of MSMEs and regular monitoring of the restructured accounts. Additionally, RBI is monitoring the liquidity conditions of NBFCs constantly and will soon meet their representatives for further discussions.

Das also mentioned that the majority of the MSME functioning falls under the jurisdiction of Indian government whereas RBI, in particular, handles the commercial aspect.

Liquidity Crunch?

The RBI governor has clarified that the economy is not facing any liquidity shortage at the moment and if any deficit arises, it would be met accordingly. "RBI would not like a situation where liquidity becomes a kind of loose money. Any infusion of liquidity will have to be carefully considered and has to be need-based," Das said.

He cautioned that excess liquidity could have adverse effects, "therefore, caution and care have to be exercised by the RBI." While liquidity needs in the majority of the sectors are met, there have been various dialogues about the issue of liquidity faced by NBFCs. To better understand the concerns, it is important to have a face-to-face interaction with the representatives, which will take place on January 8, 2019.

Expert Committee

Various issues were raised during the meeting by MSME representative, which Das said would be discussed internally. Notably, an expert committee was formed a day after the announcement of MSME loan restructuring "to identify causes and propose long-term solutions for the economic and financial sustainability of the MSME sector."

The 8-member committee chaired by the former Chairman of Securities and Exchange Board of India, UK Sinha would "review the current institutional framework that is in place to support the MSME sector, study the impact of the recent economic reforms on the sector and identify the structural problems affecting its growth" among other aspects.

The committee is supposed to submit its report by the end of June 2019. As for the restructuring, it has to be implemented by March 31, 2020. While introducing the scheme, the central bank has clarified that the borrower needs to be GST-registered on the date of implementation of restructuring to avail the measure.