RBI Measures Could Alleviate Pain for MSMEs

To help Small Borrowers and retail segment 

Jewellery Market Bureau: India Ratings and Research (Ind-Ra) opines the stimulus measures announced by the Reserve Bank of India (RBI) to tackle the second covid wave would help contain the pressure on the banking system’s asset quality, especially for micro, small and medium enterprises (MSMEs) and retail segment. 

Banks can also support the incremental credit needs of small businesses through a reassessment of their working capital requirement, though the system’s propensity, in absence of external stimuli, could be tested as the perceived risk would be elevated amid the prevailing challenges. Consequently, both delinquencies (at least in 1QFY22) and the quantum of restructured assets could be higher than last year, given that there is no moratorium without restructuring.

Assistance to SMEs/MSMEs Continues through All Lenders: The RBI has permitted restructuring of MSMEs in line with the notification dated 6 August 2020; invocation can happen up to September 2021 and the implementation deadline is December 2021 for the entities with aggregate exposure of INR250 million.

Even where the restructuring has already been completed under the same guidelines in FY21, moratorium can be extended upto to a maximum of two years. Banks are also permitted to extend similar forbearances to small businesses and individual borrowers. Ind-Ra expects a spike in restructuring in small and medium enterprises (SMEs)/MSMEs and retail segments especially in the absence of a moratorium like in FY21. 

In the wake of these measures along with the Emergency Credit Linked Guarantee Scheme (ECLGS), borrowers could tide over temporary liquidity challenges, though slippages in unviable assets could spread over FY22-FY25. By end-February 2021, Ind-Ra estimates banks sanctioned INR2.46 trillion to beneficiaries. Also, INR0.45 trillion of advances (with banking exposure of up to INR50 million) were restructured by end-March 21. 

These measures can also be extended by non-banking financial companies (NBFCs) and thus provide a breather to borrowers especially in the informal economy. Ind-Ra opines that non-banks especially in the vehicle finance, mid – large ticket loans against property and unsecured business loan segments would make substantial use of this provision.







 

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