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Budget 2020: Govt asks RBI to extend MSME loan recast scheme

The government proposal, announced in the Union Budget, would help MSME entrepreneurs – who were hit by demonetization and GST implementation — in supporting their business.

Written by George Mathew | Mumbai | Updated: February 2, 2020 12:13:12 pm
Budget 2020, Nirmala Sitharaman Budget 2020, Budget 2020 Sensex, Reserve bank of india, MSME loan recast scheme, Sensex Nifty Budget, Indian Economy Budget 2020, Economic slowdown budget, India gdp grwoth budget, Budget news, Indian Express Unveiling the scheme on January 1, 2019, the RBI had said the aggregate exposure, including non-fund based facilities of banks and non-bank entities, to a small borrower should not exceed Rs 25 crore as on January 1, 2019. (File photo)

The government has asked the Reserve Bank of India to consider extending the loan restructuring scheme for micro, small and medium enterprises (MSMEs) by one more year till March 31, 2021.

The government proposal, announced in the Union Budget, would help MSME entrepreneurs – who were hit by demonetization and GST implementation — in supporting their business. While over five lakh small businesses had taken advantage of the scheme in the last one year, thousands of units have either shut down or on the verge of closure as the economic slowdown has intensified the woes of the MSME sector.

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Unveiling the scheme on January 1, 2019, the RBI had said the aggregate exposure, including non-fund based facilities of banks and non-bank entities, to a small borrower should not exceed Rs 25 crore as on January 1, 2019. The restructuring was originally to be implemented by March 31, 2020 and a provision of 5 per cent in addition to the provisions already held, should be made in respect of accounts restructured under this scheme.

Explained

To help sector reeling from note ban, GST

The government proposal, announced in the Union Budget, would help MSME entrepreneurs — who were hit by demonetisation and GST implementation — support their business. While over 5 lakh small businesses had taken advantage of the scheme in the past one year, thousands of units have either shut down or are on the verge of closure as the economic slowdown has intensified the woes of the sector.

The RBI, when Urjit Patel was the Governor, was initially reluctant to sanction such a forbearance but relented in the wake of pressure from several board members who pushed for the bail-out small borrowers hit by demonetization and implementation of GST. As per the RBI, to be eligible for restructuring, the borrower’s account should be in default but is a ‘standard asset’ as on January 1, 2019 and continues to be classified as a ‘standard asset’ till the date of implementation of the restructuring. The borrowing entity should be GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs which are exempt from GST-registration.

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The RBI had said accounts classified as non-performing asset (NPA) can be restructured, but the extant asset classification norms governing restructuring of NPAs will continue to apply. However, as a general rule, barring the one-time exception, any MSME account which is restructured must be downgraded to NPA upon restructuring and will slip into progressively lower asset classification and higher provisioning requirements as per the current norms. Such an account may be considered for upgradation to ‘standard’ only if it demonstrates satisfactory performance during the specified period.

Satisfactory performance means no payment (interest and/or principal) should remain overdue for a period of more than 30 days.

Meanwhile, on Saturday, Finance Minister Nirmala Sitharaman allocated Rs 350 crore under the interest subvention scheme, for 2 per cent interest subvention for all GST registered MSMEs, on fresh or incremental loans.

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The Finance Minister said that the government will create a payment platform for MSMEs to enable filing of bills and payment. This will help eliminate delays in payment and give a boost to investment in MSMEs.

Platform for filing of bills and payment

Unveiling the scheme on January 1, 2019, the RBI said the aggregate exposure, including non-fund based facilities of banks and non-bank entities, to a small borrower should not exceed Rs 25 crore as on January 1, 2019

The restructuring was originally to be implemented by March 31, 2020 and a provision of 5 per cent in addition to the provisions already held, should be made in respect of accounts restructured under this scheme

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THE RBI when Urjit Patel was the Governor, was initially reluctant to sanction such a forbearance but relented in the wake of pressure from several board members who pushed for the bail-out small borrowers hit by demonetization and implementation of GST

the rbi had said accounts classified as non-performing asset (NPA) can be restructured, but the extant asset classification norms governing restructuring of NPAs will continue to apply the govt will create a payment platform for MSMEs to enable filing of bills and payment

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