MSME Loans Over Rs 70,000 Crore Restructured Since January 2019, Says RBI

A weaver uses a handloom to make a silk sari at a workshop. The GST MSME software is available under ‘Download’ tab on the official GST portal, GSTN said in a statement. (Photographer: Dhiraj Singh/Bloomberg)

Banks have restructured Rs 71,431 crore in loans to micro, small and medium enterprises since January 2019, according to data provided by the Reserve Bank of India.

The regulator had originally announced a recast scheme for MSMEs in January 2019, where lenders were allowed to restructure loans without downgrading them to the category of non-performing assets. In Feb 2020 and Aug 2020, the banking regulator reintroduced the scheme to help small borrowers.

Public sector banks restructured about 80% of the loans, according to the RBI data.

"While PSBs have actively resorted to restructuring under all the schemes, participation by PVBs (private banks) was significant only in the Covid-19 restructuring scheme offered in August 2020,'" the regulator said in its financial stability report.

As a percentage of advances, restructured loans are at about 1.7%, a separate data set in the report suggests.

In May, the regulator reopened the restructuring window again for borrowers with aggregate outstanding dues of up to Rs 25 crore and accounts classified as standard as of March 31, 2021. Loans restructured in the previous years would not qualify for restructuring again.

"Since 2019, weakness in the MSME portfolio of banks and NBFCs has drawn regulatory attention, with the Reserve Bank permitting restructuring of temporarily impaired MSME loans (of size up to Rs 25 crore) under three schemes," it said in its report.

Despite the restructuring, however, stress in the MSME portfolio of PSBs remains high.

RBI FSR, July 1

The stress in the MSME sector remained at elevated levels ,as the non-performing asset ratio stood at 15.9% of advances of public sector banks as of March, compared with 13.1% in December 2020. In the case of private banks, gross NPA ratio rose to 3.6% at the end of the last fiscal, up 160 basis points sequentially.

In March 2020, public sector banks and private banks reported gross NPA ratios of 18.2% and 4.3% respectively.

Credit Flow To MSMEs

Credit to MSMEs rose during the last fiscal, largely helped by the emergency credit line guarantee scheme, which the government initiated in May 2020.

"Growth in credit to MSMEs during 2020-21 was aided by the ECLGS scheme, with aggregate sanctions at Rs. 2.46 lakh crore at end-February 2021," the report said.

Public sector bank lending toward MSME borrowers as of March 31, was relatively flat, growing 0.89% year-on-year. In the case of private sector banks, loans to these borrowers rose 9.23% in FY21, compared with a year ago.

In its report the regulator highlighted that fresh credit to stressed MSMEs was on the rise, which could lead to higher vulnerability in the segment.

"Given the elevated level of debt of the stressed cohort, the implications of business disruptions following the resurgence of the pandemic could be significant," the RBI said in its report.