Small businesses to benefit from RBI’s Restructuring Scheme

As per news sources, the Reserve Bank of India’s restructuring package for small businesses announced last month is likely to help recast ₹ 1 lakh crore of loans for ₹ 7 lakh eligible micro, small and medium enterprises (MSMEs).

A government official said in a statement that, the estimate from the Department of Financial Services (DFS) is much higher than domestic rating agency ICRA’s assessment of ₹10,000 crore. In fact, it even comes as some banks have seen a hesitancy among the target MSMEs to take advantage of the scheme. The official added that, about 7 lakh MSME units need restructuring.

The government official, Rajiv Kumar Secretary, (DFS) also stated at a post-budget interactive meeting with industry captains that, “they all can be restructured till March 2020 without downgrading the asset. Rs 1 lakh crore worth loans will get restructured.” He further added that the scheme will help free up additional resources which will be helpful in fuel demand and create further opportunities in the industry. Moreover, it can be noted that the scheme was termed as “regressive” by analysts, as the RBI had officially discontinued the practice of restructuring of advances, which is among the factors blamed for the high NPAs as banks indulged in “ever-greening”, he concluded.

While, ICRA’s Group head, Karthik Srinivasan said, “during the past few years, RBI has been doing away with various schemes for asset quality forbearance and hence this is regressive from a credit culture point of view, given the past experiences of the banking sector with restructuring.”

As per reports, the scheme was announced by RBI after a recommendation to consider the same by its central board at a crucial meeting held in the month of November last year after an amid friction between the central bank and the government.

According to the scheme announced by RBI, it is a one-time scheme wherein a loan tenor and interest rate can be revised without classifying the asset as a NPA. This facility is available for standard advances of up to ₹ 25 crore only.

News reports claim that, MSMEs have shown reluctance to come forward and take advantage of such a scheme. On this a private sector banker also said that even though the asset continues to be standard, the borrower’s credit history is impacted which may cause some difficulty at a later stage. As per news reports, the scheme does not change things materially for an enterprise beyond acknowledging the pains an MSME has had to go through because of decisions like demonetisation or introduction of GST.

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