ARE CURRENT PRUDENTIAL NORMS OF ASSET CLASSIFICATION FOR MSME SECTOR’S RELEVANT ??

Bank’s/ FI declare Loan Accounts NPA if there is any overdue beyond 90 days. This write up is only to analyse it’s relevance particularly in the backdrop of special situation like COIVD.

Before the NPA status, the account goes through a whole cycle of bounced cheques, DPD’s, CIBIL hits, rating downgrades and other financial imprudence for adhering to such bank’s prudential norms. Reschedulement / restructuring is a taboo and easy processes are absent where Lenders can allow reschedulement of loan for given situation without declaring it NPA. One day delay on loan repayment may downgrade MSME loan accounts as NPA blocking financing prospects of the business.

While it is anytime agreeable that money from banking system to corporates, is Public Money and we all should have best processes in place to safeguard it. Most of the time SME funding has been more than 100% collateral based with a lot of too much of security versions to covenants.

Following are few other facts for due consideration.

i ) Total banking exposure to SME is around 15%, while SME’s contribution to GDP is apporx. 30%.

ii ) There have been instances of relaxing prudential norms for SME’s in near past (to manage GST implementation). delinquency norm of 90 days was shifted to 120 days.

iii ) Banking products/ rating norms are different for SME’s.

iv ) Recent Govt/ RBI announcement for SME’s were different from accommodations, if any, for large corporates.

v ) Recent One Time Restructuring of Loan is also classified into 2 parts, below Rs 25 Cr and above Rs 25 Cr.

Now, the question is:

1) Why such prudential norms for SME’s are not different from big corporates, when Big corporates are entirely having different DNA and support system. They are more structured and mature in terms of financial discipline and can afford professionals to do it’s cashflows / financial management

2) Will 180 days criteria in place of current 90 days (for NPA) and some other relaxation in norms i.e. re-schedulement of loan with possibility of 1-year tenure extension without inviting NPA status vis a vis repayment of loans, make any substantial difference to security/ risk perceptions to lenders.

Necessity is the mother of innovations………. will it hold good for SME lending reforms…