The Reserve Bank’s restructuring initiative for small businesses announced last month will help recast Rs 1 trillion of loans for 700,000 eligible micro, small and medium enterprises, said a top government official.
The estimate from the Department of Financial Services (DFS) secretary Rajiv Kumar is much higher than domestic rating agency ICRA’s assessment of Rs 10,000 crore. This has caused banks to become reluctant about the target MSMEs that may take advantage of the scheme.
He said the scheme would also help free up additional resources which will fuel demand and create further opportunities in the industry.
It can be noted that the scheme have been termed “regressive” by analysts, as the RBI had officially discontinued the practice of restructuring of advances, which is among the factors blamed for the high NPA (Non-performing assets.)
ICRA’s group head Karthik Srinivasan had said that in the past few years, RBI has been doing away with various schemes for asset quality forbearance and hence it has been regressive from a credit culture point of view, given the past experiences of the banking sector with restructuring.
The scheme was announced by RBI after being advised by its central board at a crucial November meeting held amid friction between the central bank and the government.
The government, which is to face elections in the forthcoming summer months, was pressing for a leeway like the MSME recast to drive the economy, while the RBI was reluctant to set any new or foreign for the coming months. The board meet was followed by Governor Urjit Patel’s resignation early December.
The scheme announced by RBI is a one-time scheme wherein a loan tenor and interest rate can be revised without having the needs to classify the asset as an NPA. The facility is available for standard advances of up to Rs 25 crore only.
Bankers said MSMEs have a reluctance to come forward and take advantage of such a scheme.