In a circular issued to all banks and NBFCs that were issued late Tuesday, RBI said that microcredits are an important part of the Indian economy and contribute significantly to gross domestic product, exports, industrial production and employment. "Given the importance of micro enterprises in the Indian economy, it is currently considered necessary to take certain measures to create a favorable environment for the sector," RBI said.
SMEs were most affected in different industry segments after demonizing and implementing the goods and services tax. The availability of credit to micro-businesses declined further after the IL & FS default crisis that led to bank credit for non-bank finance companies drying up. This, in turn, has reduced NBFC's ability to provide loans to MSME & # 39; s.
According to bankers, the sector was struggling with a liquidity problem due to a lack of confidence among banks that had become risk averse due to bad loans. RBI's decision to insist on MSME's registration on the GST network is expected to speed up the formalization of the MSME sector, which will improve banks' ability to lend to such companies. Access to GST data gives banks better information about the cash flow and creditworthiness of the MSME.
Regarding the scheme, the restructuring must be implemented by 31 March 2020. Banks will have to make a provision of 5% for these restructured loans. Each bank / NBFC must formulate a policy for this scheme with the approval of the board. Those micro-enterprises that are not exempt from GST must be registered at the GSTN on the date of the restructuring.
This is the second important decision to be taken by the newly appointed RBI governor Shaktikanta Das. Das had previously appointed, in consultation with the government, a committee to look at the transfer of excess reserves from RBI to the center. Credit to SMEs was one of the controversial issues raised by board members of the government in the board meetings of RBI.
The issue of the restructuring of MSME accounts was discussed at the meeting of the Central Board of RBI on 19 November and also by Das in his recent interactions with the banks and other stakeholders. The government has launched a lending aggregation portal that enables SMEs to obtain bank approval from banks in 59 minutes. According to the RBI sources, the circular is not in violation of its previous directive on 12 February to abolish all loan restructuring arrangements. "MSME's credit restructuring program only applies to loans up to Rs 25 crore, while the 12 February circular applies to borrowers with loans above Rs 25 crore," sources said.