Industry associations request tweaks in loan restructuring scheme

G Balachandar Chennai | Updated on August 12, 2020

Several industry associations have urged the RBI to consider widening the window of MSME (micro, small & medium enterprise) restructuring package to cover more slowdown-hit units.

While they have welcomed the RBI’s ‘Restructuring of Advances for Viable MSMEs’ terming it a timely decision, the associations are of the view that the package in the current form may not support adequate units that may be in need of help.

“We estimate 30-40 per cent of companies in our sector (based on the coverage of a survey of 1800 companies whose liquidity position is precarious), would benefit immensely through the implementation of restructuring scheme and this will help the sector in the revival process,” said Prabhu Dhamodharan, Convenor, Coimbatore-based Indian Texpreneurs Federation.

However, ITF has requested RBI to include this scheme for MSMEs as per the revised definition notified by RBI vide circular dated July 2 which would enable a comprehensive coverage of companies. This change is much-needed for the spinning sector to get eligibility for the scheme.

“Keeping ₹25 crore limit (aggregate exposure) and also keeping out of stressed accounts like SMAs (Special Mention Accounts) in the package leads to more companies out of the scheme. Scores of MSMEs slipped into NPAs mainly due to delayed payments on account of a challenging business environment. Most of them have capabilities to survive and grow if help extended,” he added.

As per the latest RBI package, companies, including MSMEs, that have loan exposure of more than ₹25 crore and defaulted on payments for more than 30 days will not qualify for the package.

The Consortium of Indian Associations pointed out that the package announced by the central bank would not serve the real purpose of either supporting ailing MSMEs or containing NPA increase in banks.

“The ₹25-crore ceiling is too small and many MSMEs are unlikely to be covered under this scheme on account of the limit prescribed by the RBI. Due to the slowdown in the past one year and subsequent COVID-19 crisis, most of the MSMEs are unable to repay the loans and in need of restructuring. They cannot be classified as unviable. This cut-off date shall be December 31, 2019. Otherwise, restructuring will not reduce NPA. It will make healthy enterprises turn weak, rather than weak units become healthy,” said KE Raghunathan, Convenor, CIA.

“Restructuring packages cannot be a blanket for everybody. The government or the regulator can pick and choose sectors that have been under severe stress for a longer period. However, it may be a fair request in the case of companies that were under overdue in March that managed to come back and repay their loans, and seek loan restructuring” said Rajat Bahl, Chief Ratings Officer, Brickwork Ratings.

Among its other requests to Union Finance Minister and RBI Governor, the CIA has highlighted that restructuring should be done for every enterprise which applied for and those who didn’t wish to avail of restructuring benefits should be allowed to close down voluntarily their loans with a waiver of pre-closure demands, waiver of interests and penal interests and legal costs as a one-time resolution.

Published on August 12, 2020

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