The micro, small and medium enterprises (MSME) sector is amongst the biggest employers in the country. If the MSME sector is crippled, a significant section of the Indian population will remain jobless. Realising this, the Reserve Bank of India (RBI) has allowed banks to restructure stressed loans of MSMEs, by avoiding their classification as non-performing assets, provided the banks make 10 per cent additional provisions on such loans.
This support comes as a relief to many MSMEs that have been suffering due to the disruption caused by the pandemic and were on the brink of winding up or dissolving their workforces. Borrowers who are burdened by their loans can now get their debt restructured as long as their accounts with the lending banks are classified as ‘standard’ as on March 1, 2020. The restructuring will have to be implemented before March 31, 2021.
This move will go a long way in improving the liquidity and feasibility of the MSMEs during these troubling times.
The lending banks who were anticipating a spike in the NPAs in the MSME sector, after the loan moratorium period ended on August 31 2020, can also rest assured now.
The loan restructuring option will also help to preserve the credibility and viability of many firms in the MSME space, who have maintained a flawless track record until now, but were stressed owing to the pandemic.