The pandemic came into our lives stealthily, without any forewarning. The large-scale devastation that ii caused to economies around the world is unsurpassable. One of the most badly affected sectors in the Indian economy is MSME. Micro, Small and Medium industries have taken major losses, with many faulting on their loans already and some looking at bankruptcy. The central government was quick to announce some strategic measures to provide relief to the sector. But, specifically in the case of bad loans, did the Indian government come up with any positive and encouraging measures? Let us have a closer look at the state of affairs on the ground.
The pandemic – facts about the MSME sector
· The sector saw about 60% Non-Performing Assets (NPA) in April and May. The usual trend was between 30% to 40% during the pre-Covid times.
· Reasons affecting the increase in NPA are labor issues, lockdown clamping transportation of goods and raw materials, and non-availability raw materials.
· Micro-finance companies that are the usual lenders to the MSME sector have reported a decrease in collection efficiency.
· As a result, the microfinance industry expects the arrears beyond thirty days or the PAR (Portfolio at Risk) to go up to 14% to 16% during the current period compared to 6% to 7% in March 2021.
· The Retailers Association of India recorded -79% of YTY sales compared to May 2019
· The Indian Hotels recorded a loss of Rs. 524 crore for FY20-21.
· The same is the story with airlines and the automobile sector.
Relief measures by the government and the RBI
· Restructuring the loan – the RBI has re-opened the one-time restructuring until September 2021 for MSMEs and individual borrowers.
· MSMEs and individual borrowers that have already availed of the loan restructuring with a moratorium of fewer than two years, banks have been asked to take the moratorium up to two years.
· Those MSMEs that were restructured before, lending banks have been asked to review and reassess the working capital limits
· The government has announced offering credit guarantees to banks to lead to stressed MSMEs that typically involve high risks.
· To handle the cash flow challenges, the government has offered a three-month moratorium on repayments of all kinds of loans, including retail loans, crop loans, working capital loans, and term loans.
· Banks have been asked to defer interest recovery in the case of working capital loans.
· Changes to the Insolvency and Bankruptcy Code. (1) Sections for initiating insolvency got suspended for the time being. (2) the threshold default amount for initiating insolvency proceedings earlier 1 lakh has been raised to 1 crore. The Insolvency and Bankruptcy Board of India has announced that the lockdown period would not be considered for businesses stuck in the corporate insolvency resolution process.
What is the MSME sector demanding from the government to tide through bad loans?
· The government should revisit the classification of bad loans
· Government agencies to clear outstanding payments
· Restructuring loans on paper by businesses during these challenging times can be difficult.
· Restructuring should be pushed for NPAs.
For Original Post Visit: https://rohit-kakkar.blogspot.com/2021/06/steps-taken-by-government-to-help-msme.html