By Sudhakar Atre:
THE announcement made by Reserve Bank of India (RBI) on January 1, 2019 permitting all banks and NBFCs to restructure stressed viable MSME accounts with aggregate exposure upto Rs 25 crore without downgrading the asset to substandard (NPA), was very warmly received by MSME sector. It was expected that it will prove a soothing balm to ailing MSME sector. The expectation was based on the presumption that it will be win-win situation for bankers and borrowers both as borrowers will get breather for revival of their ailing industries and bankers will be benefitted by minimising the threat of increase in their NPAs and resultant effect on their profitability because of increase in provisioning. But unfortunately the feedback received from the various stakeholders is not up to the expectation as it is reported that substantial number of stressed MSME accounts are classified as non performing asset (NPA) on March 31, 2019 by various banks and now recovery process is contemplated against them. Various reasons can be attributed to this but the major factors can be summarised as under: 1)
RBI issued the guidelines on January 1, on the captioned subject but left it to the individual boards of the banks to formulate the restructuring policy. RBI may be right in its own perception as banks have their own restructuring policies in place and little modification was required to align those with the new relaxations. Hence, it was expected that bank will put in place policies duly approved by their board, display it on their website and pass a suitable message to lowest operational level for implementation.
However, the progress in this regard is far from satisfactory as most the banks have not either displayed restructuring policy on their website and/or the instructions for execution of the restructuring policy are not percolated down to branch level. Of course there are certain exceptions and some public sector banks have implemented the scheme in letter and spirit but these exceptions are very few. The time of more than three months has already passed hence it’s high time RBI should arrange a meeting of banks and NBFCs to review the progress in this regard otherwise there is an apprehension that scheme will remain on paper only.
2) There seems to be some confusion regarding applicability of the scheme to types of banks. Even though RBI has issued guidelines to all banks and NBFCs, response of most of the private sector banks and co-operative banks seems to be lukewarm towards adoption of restructuring policy. However, these challenges can be overcome if RBI shows little proactiveness by monitoring the progress of the scheme.
Their representatives’ at forums like State Level Bankers Committee (SLBC) and District Level Consultative Committees (DLCC) should be asked to monitor the implementation of the scheme.
3) It is true that there is a lack of awareness on the part of MSME borrowers about the scheme. MSME-DIs located at different places can play a great role in this regard by organising meetings of borrowers of stressed units and arranging interactive sessions with bankers. This will certainly help in resolving large number of issues and will help in confidence building among various stake holders. The Ministry of MSME should issue suitable instructions to MSME-DIs for arranging such meetings and inviting representatives of MSME organisations like Laghu Udyog Bharati etc., to make such meetings more meaningful.
4) On March 17, 2016 RBI had advised that The Indian Banks’ Association (IBA) may prescribe suitable application formats for aggregate loan limits above Rs 10 lakh, for restructuring. Accordingly, IBA had uploaded two application forms, one for limits upto Rs 10 lakh and another for limits above Rs 10 lakh for MSME borrowers under their MSME folder which provided easy access to deserving MSMEs. Unfortunately with launching of their new website, all these application forms have been withdrawn and MSME folder is empty. RBI should take up the matter with IBA for immediate restoration of these files which will help MSME borrowers to approach their bankers with desired information which will facilitate banks for faster processing.
5) The RBI guidelines for restructuring issued on January 1, 2019 states that each bank/NBFC should formulate a framework for viability assessment of the stressed accounts. There seems to be some misunderstanding whether banks have to formulate this framework a fresh. But it should be noted that most of the banks have already formulated the framework for viability assessment of the stressed accounts as per notification issued by RBI on March 17, 2016. Hence, this framework can be made applicable for this mechanism of restructuring of advances to MSMEs also. (The author is a freelance writer on banking. He can be contacted on [email protected])