Credit and Finance for MSMEs: MSME loan accounts restructured by the public sector banks (PSBs) have grown 2.1X in the nearly one-and-a-half-year period. From 6,19,562 accounts involving Rs 22,650 crore restructured as of January 31, 2020, 13.06 lakh accounts with an aggregate amount of Rs 55,333 crore were restructured as of June 26, 2021, MSME Minister Narayan Rane said in reply to a question in the Lok Sabha on Thursday. The last year’s data was shared by former Finance Ministry MoS Anurag Thakur in the Rajya Sabha in March 2020. Since 2019, weakness in the MSME portfolio of banks and NBFCs has drawn regulatory attention, with the Reserve Bank of India (RBI) permitting restructuring of temporarily impaired MSME loans up to Rs 25 crore.
“During Covid, it is good that government realised the MSME sector, which has been facing challenges since it doesn’t have deep pockets, needs support. The mortality rate in MSMEs is very high but since the government was able to provide some support, banks continued to provide resources to the MSME sector. Many MSMEs don’t come to the banking system for support directly, they come through the non-banking finance entities. Hence government was kind in the sense that it allowed the flow of credit to NBFCs so that they can continue support to the MSME sector,” Charan Singh, Former Chairman, Punjab & Sind Bank and CEO, EGROW Foundation – a public policy organisation — told Financial Express Online.
The RBI in its Financial Stability Report earlier this month had noted that while PSBs have actively resorted to restructuring under all the schemes, participation by private banks (PVBs) was significant only in the Covid restructuring scheme offered in August 2020. The aggregate restructured portfolio of PSBs stood at Rs 26,190 crore under January 2019 scheme before it dropped to Rs 5,860 crore in February 2020 scheme. However, post-Covid, there was a sharp increase to Rs 24,816 crore during the August 2020 scheme. In contrast, PVBs’ stood at Rs 1,364 in February last year but increased to Rs 11,027 during the August 2020 scheme.
Nonetheless, despite the restructuring, the stress in PSBs’ MSME portfolio remains high with the NPA rate at 15.9 per cent as of March 2021 in comparison to 13.1 per cent as of December 2020 even as it is down from 18.2 per cent as of March 2020. RBI had asked banks for close monitoring of asset quality of MSME and retail portfolios. “This calls for banks to shore up capital positions while favourable market conditions prevail. The banking sector will be required to specifically guard against adverse selection bias while being alive to the credit demand from productive and viable sectors,” RBI had said in the report.
To provide resolution to the Covid-19 related stress of MSMEs, the RBI had extended the facility for restructuring existing MSME loans (where the aggregate exposure of all lenders to the MSME does not exceed Rs 50 crore as of March 31, 2021) without a downgrade in the asset classification till September 30, 2021.