Is 2019 a New Beginning for Indian MSMEs? What does loan restructuring mean for MSMEs: a lasting solution or just a band-aid for their everlasting distress? Entrepreneur examines.

By Mohit Sabharwal

Opinions expressed by Entrepreneur contributors are their own.

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Can micro, small and medium enterprises (MSMEs) be saved? Often called as the engine of growth, there are approximately 60 million MSMEs in the country, employing approximately 120 million people, which accounts for almost one in 10 Indians. But sadly, for the past few years, these enterprises have been facing a relentless economic decline. Industry wide estimates suggest that at least 35 lakh jobs have been lost since 2014, and the operating profits in the sector have declined by at least 30 percent — a corollary of the twin impact of demonetization and GST. Taking note of the distress, the political class in conjunction with the Reserve Bank of India (RBI), have been coming out with a series of remedial announced on January 1, 2019, allowing one-time restructuring of loans for up to Rs 25 crores for MSMEs. The move would allow financially strained MSMEs, which have defaulted on payments but are not yet categorized as stressed, to pay the outstanding loan in revised lower equated monthly installments (EMIs), spanning over a longer duration.

To assess the move, Entrepreneur spoke with various MSME owners and industry experts to gauge its likely impact on the sector and economy in general.

Definitely a solution, but tangential to the issue at hand, says Nalin Tayal of GATS India as he explains his stance on the move. Striking a chord with many MSMEs which, of late, have been increasingly complaining about the delay in payments, Nalin says, "Restructuring of loans is not the need of MSMEs. They are instead looking for timely payments from their big customers and a level-playing field, where MSMEs can work on minimum fixed margins, at par with global trends." However, Karnataka-based Srinivas M. of Panchajanya Enterprises terms the move a much awaited relief. He says, "The move is great. Cash crunch is a reality, and the move would definitely help enterprises resurrect from the financial muddle they were succumbing to." Another small enterprise owner, Nandan Serlekar of Servel Engineers, demanded a law instead mandating all the payments to be settled within a stipulated time.

Economist Venkatesh Athreya builds a case for going back to pre-1991 era and also cautioned against the move's potential misuse. He says, "Restructuring should be done on a case-by-case basis, as many large firms often masquerade as various small and medium enterprises. The move, if not carefully implemented, could stifle the benefits meant for genuine enterprises." According to Athreya, the government could have utilized favourable global economic conditions from the recent past--low crude oil prices, to introduce substantial reforms for the sector. On having missed onto that opportunity, Athreya now calls for a well-planned state intervention and reintroduction of protectionist policies, which MSMEs enjoyed in the pre-1991 era to protect small businesses from ruthless competition posed by multinationals.

NBFCs, in the last few years, have been the go-to lenders for MSMEs. Their share in lending went up from 7.9% in December 2015 to 11.3% in June 2018. But, in the recent past, these lenders themselves are facing the malaise of cash crunch, especially post the IL&FS fiasco--one of India's largest NBFC. Raman Aggarwal, chairman of Finance Industry Development Council (FIDC)—a self regulatory body for NBFCs--says, "In the wake of the recent IL&FS crisis, a negative sentiment has got created against NBFCs, which has resulted in banks becoming apprehensive in lending to them, and subsequently impacting the MSMEs." According to him, since other avenues of fund raising such as external commercial borrowings, securitization and non convertible secured debentures are restricted for NBFCs, having an alternative refinancing window for them is an absolute essential to solve the liquidity crunch permanently.

However, Anil Sharma, Independent Director at UCO Bank, believes that the move would prove to be a shot in the arm for MSMEs. He says, "Restructuring would certainly help MSMEs which have been struggling to remain afloat in the recent times. The move, ultimately, would have a significant positive impact on economy in general, he adds. Anil also counters the claim that banks have become reluctant to lending to NBFCs. He says, "The IL&FS fiasco has impacted only top 10 percent of the NBFCs to which, banks have become averse. To the rest, banks continue to lend. Infact, NBFCs induced NPAs with banks are quite low, not more than 2-3 per cent."


Numbers of MSMEs in India

60-65 Million

Contribution to GDP

6.11%(Manufacturing), 24.6%(Services)

Contribution to Exports

40% of Total Country's Exports.

No. of People Employed

120 Million

Source: BCG Report, SIDBI, CII

Market Share of Lending to MSMEs

Public Sector Banks

Private Sector Banks



June 2016





June 2017





June 2018





Source: MSME Pulse

Level of MSME Induced NPA's with Lenders

Public Sector Banks

Private Sector Banks


June 2018




Source: MSME Pulse

(This article appears in the February 2019 issue of Entrepreneur Magazine. To subscribe, click here. You can buy our tablet version from To visit our Archives, click here.)

Mohit Sabharwal

Former Senior Correspondent, Entrepreneur India Magazine

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