With the Reserve Bank of India’s loan-restructuring window for micro, small and medium enterprises (MSMEs) available till March 31, 2020, credit rating agency ICRA expects a surge in entities seeking the restructuring option.

The agency reasoned that even borrowers that were marginally overdue on their repayments will go in for the option, as it will ease their cash flows by way of reduced debt repayments.

In a breather to the MSME sector, the RBI, on Tuesday, decided to permit one-time restructuring of existing loans to these enterprises that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade.

To be eligible for the restructuring, the aggregate exposure, including non-fund-based facilities of banks and NBFCs to a borrower, should not exceed ₹25 crore as on January 1, 2019. The restructuring has to be implemented by March 31, 2020.

As per ICRA’s estimates, credit to MSME entities (less than ₹25 crore) stood at ₹10.7 lakh crore for the banking sector, apart from ₹2.5 lakh crore from other lenders.

Karthik Srinivasan, Group Head, ICRA, observed that during the last few years, the RBI has been doing away with various schemes for asset-quality forbearance. Hence, the one-time restructuring of existing loans to MSMEs is regressive from a credit culture point of view, given the past experience of the banking sector with restructuring.

“However, given the challenges faced by the MSME segment in availing funding from the organised markets in the current environment, the measure attempts to improve their liquidity position.

“Accordingly, from the borrower’s perspective, the measure is positive as loan restructuring – which includes elongation of repayment schedule, additional funding for capital expenditure or working capital, and moratorium on interest servicing – will provide them additional funding and respite on their cash outflows in the near term,” said Karthik.

Assocham hails move

Industry body Assocham welcomed the ‘much-needed’ relief to MSMEs. The move will significantly mitigate the cash crunch woes of a majority of MSMEs, boost manufacturing activity, and spur creation of jobs.

“The enterprises have been facing difficulties in accessing credit due to liquidity crunch thereby hitting operations.

“Thus, this is a very significant measure, which will help improve competitiveness of this critical sector and play a pivotal role in further reviving the ecosystem for small businesses and create an enabling business environment,” Assocham said in a statement.