While micro, small and medium enterprises (MSMEs) continue to grapple with the lockdown, several small businesses are expected to avail the one-time restructuring scheme offered by the Reserve Bank of India (RBI). However, the MSME associations have sought the government's permission to restructure viable non-performing (NPAs) and default accounts where there are no wilful defaulters.
"The RBI policy should be extended to these accounts as well, as bad loans may pile up in coming months. It is the only way to save small businesses from bankruptcy," Mukesh Mohan Gupta, President, Chamber of Indian Micro, Small and Medium Enterprises (CIMSME), said.
Finance Minister Nirmala Sitharaman, while presenting Union Budget 2020 on February 1, said the government has asked RBI to extend the debt restructuring window by another year, ending March 31, 2021. RBI in its Monetary Policy Review Meeting on February 6 said it would be extending the scheme to December 31.
Over six lakh MSME loans were restructured as of March 31. The government expects over 25 lakh MSME loans may be restructured by December 31.
According to Gupta, additional funding is not a solution as banks have become hesitant to lend to small businesses. With no working capital in sight, deep restructuring is the only solution.
If the lockdown continues, MSMEs may not be able to survive the next two months and may not be able to pay salaries.
The MSMEs sector plays an important role in the growth of the Indian economy, contributing over 28 percent of GDP and more than 40 percent of exports. The sector provides employment to over 11 crore people.
While government guidelines have accorded a three-month moratorium on loans, CIMSME expects that MSMEs may not be able to meet principal and interest payments for at least six months.
"There are no reserves with MSMEs to service these loans. The banks will have to waive off interest," Gupta said.