Credit and finance for MSMEs: Industry body PHD Chamber of Commerce and Industry in its recommendations to the government for the upcoming budget 2023 has urged for increasing the provision of the 90-day limit for classifying MSMEs’ over dues into non-performing assets (NPAs) to 180 days. The working cycle of MSMEs in many cases extends much beyond the 90-day period, thereby MSMEs struggle to receive timely payments from their buyers, and end up defaulting on loans in multiple cases, it said.
For banks, this leads to an increase in MSME NPAs and further discourages them to lend to small businesses. The suggestion was shared with the government in last year’s budget as well. The 180-day repayment limit will not just allow banks to be a bit more willing in lending to MSMEs but will also let the latter have more time to arrange funds and improve their ability to repay loans.
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According to the mandate by the Reserve Bank of India (RBI), loans can be classified as NPAs if they are overdue by more than 90 days.
The chamber in its suggestions, shared with media on December 2, also asked for extending the restructuring of loans facility introduced on August 21, 2020, to restructure existing loans without downgrading the current asset classification further to enable MSMEs to cope with the post-pandemic recovery. The same facility was discontinued on 30 September 2021.
An analysis of the restructured loans due to Covid — as per the RBI mandate in March 2021 for banks and other lenders to report accounts restructured due to the pandemic to credit bureaus — showed 2.7 lakh MSME accounts tagged as restructured (aggregate outstanding of less than Rs 50 crore) as of March 2022, said a report by SIDBI and credit bureau TransUnion CIBIL in August this year.
PHD chamber also recommended an urgent revival of the Credit Linked Capital Subsidy Scheme for Technology Upgradation under the Ministry of MSME for MSMEs to continuously upgrade to become globally competitive. Importantly, the government had discontinued the scheme through a circular last year and instead formulated the MSME Champions scheme for small businesses to become sustainable, competitive, and innovative through financial assistance.
According to the available data on the MSME Ministry dashboard, the total number of MSE units supported under CLCSS during FY21 hit a five-year high. In comparison to 15,188 units supported in FY21, 4,011 units were supported in FY17 followed by 4,081 in FY18, 14,155 in FY19, and 7,779 in FY20. Moreover, the amount of capital subsidy support was also highest in FY21 at Rs 1,100.87 crore vis-à-vis Rs 256.53 crore subsidy support in FY17, Rs 260.54 crore in FY18, Rs 980.44 crore in FY19, and Rs 540.83 in FY20.
Among other suggestions for the MSME sector, the chamber sought an extension of the Interest Equalisation Scheme for pre and post-shipment Rupee Export Credit to service exporters, which represent almost 40 per cent of total exports. Currently, the scheme only extends to manufacturers and merchant exporters. It also asked for restarting the 2 per cent Interest Subvention Scheme for MSMEs which was in force till March 31 2021, to help MSMEs.
