Extend one-time restructuring of MSME advances until March 31 next year, FIDC tells RBI

Retail Sector | Representative Image (PC-Shutterstock)

In the wake of the second wave of COVID-19 in the country, Finance Industry Development Council (FIDC) urged the Reserve Bank of India (RBI) Governor Shaktikanta Das to consider extending the one-time restructuring of MSME advances till March 31, 2022.

The council, in its letter to the RBI governor, informed that MSMEs and the retail and wholesale trader industry have not been able to revive their economic activities and, therefore, are in urgent need of support from lenders.

"Various surveys and reports are forewarning that the operating environment for banks will most likely remain challenging, as the second wave could dent the sluggish recovery in consumer and corporate confidence, and further suppress banks’ prospects for new business. Considering the challenging environment for MSMEs and lenders, it will be helpful if the RBI extends the said notification till at least March 31, 2022,” FIDC Director-General Mahesh Thakkar said in the letter.

NBFCs seek extension of MSME restructuring scheme until March 2022

The FIDC DG also requested the RBI governor to regularise the Priority Sector Lending (PSL) by banks to Non-Banking Financial Companies for on-lending to cater to the Micro, Small and Medium Enterprises (MSMEs).

The council mentioned that under the on-lending model, only fresh loans granted by NBFCs are allowed PSL benefit, which existing unencumbered pools of eligible PSLs do not qualify for. "We hereby request the RBI to allow refinance, apart from by way of buy-out but also qualifying for hypothecation for DP for bank finance against existing unencumbered MSME polls originated by NBFCs," the letter read.

The industry body also sought the inclusion of 'retail trade' and 'wholesale trade' as activities recognised by the Ministry of MSMEs for registration, which have been excluded by the ministry in 2017.

Also, FIDC reminded the RBI governor that retail and wholesale trade have been rendered ineligible for classification of MSMEs. Both the sectors have been majorly impacted by the COVID-19 pandemic.

"Keeping in view the intended focus of Government of India (GoI), we have taken up the matter with relevant Ministries in GoI to make suitable changes to the Udyam Portal, which would enable retail and/or wholesale traders to obtain registration and therefore be eligible fr benefits under various schemes floated by the GoI for MSME sector," the FIDC DG said.

"The MSMEs, retail and wholesale trade segment accounts should also be allowed to be restructured without any downgrade in asset clarification, subject however to the lending NBFCs undertaking necessary credit assessment of the future cash flows of the said entity," the statement said.

The council noted that MSMEs generate the largest employment in the country and contribute over 35 percent to GDP and 40 percent to exports. It said that the sector is majorly dependent on NBFCs and other informal sources for their funding needs.