The government is considering doubling the 90-day limit to 180 days for banks to declare overdue MSME loans as non-performing assets (NPAs) or bad loans.

“The Ministry has already taken up the issue and it is being considered at a much higher level,” Medium, Small and Micro Enterprises (MSME) Secretary KK Jalan said after repeated pleas by various industry bodies at the meeting of the National Board of MSMEs, chaired by Minister Kalraj Mishra.

Mishra, too, confirmed the move, admitting that the delayed payments provisions needed changing and amendments in this regard may be taken to the Cabinet again.

Referring to reports that collateral-security-free loans up to ₹10 lakh to micro units were reportedly not being given to some units, Mishra urged banks “not to mix revival with recovery” of NPAs.

“This will lead to more sickness. Bank authorities should do proper assessment so that micro units do not die in the process,” he added.

However, banks seem wary of the change, as they fear more pressure on their margins. “Why build pressure on banks instead of on large corporates which primarily delay payments to small and micro units? Why should banks be expected to pay for the delays,” a banker told BusinessLine .

In the meeting, several MSME industry bodies said that three months was too short a period to declare a unit an NPA, as often payments get delayed by six months to a year or even longer.

“In Jharkhand, 600-700 micro units have been declared NPAs,” said a small industry body, claiming that despite letters from the Reserve Bank of India and the Finance Ministry, banks were not helping these units.

While the Centre has set up seven Finance Facilitation Centres (and plans to set up five more), not all are functioning efficiently, admitted Jalan, adding that some of these were also being run by industry bodies such as Assocham and the Confederation of Indian Industry. On Thursday, a MyMSME mobile app was also launched by Minister for Urban Development Venkaiah Naidu.

Delayed payments

“A total of 3,700 cases of delayed payments involving ₹1,650 crore have been put on the portal,” said Mishra, adding that this would facilitate monitoring of delayed payments, which is probably the “single biggest problem for start-ups.”

Even though the MSME Ministry has come out with a scheme for revival and rehabilitation of sick enterprises under which banks have been asked to set up various branch-wise committees, many States complained that such committees were yet to be set up or regular meetings were not taking place. The MSME sector, of which micro units comprise over 90 per cent, accounts for 45 per cent of total NPAs or bad loans in the banking system.

According to RBI data, the number of sick MSMEs rose to 4,86,291 in 2015-16, with ₹40,642 crore outstanding to banks.

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