No Proposal to Extend NPA Classification Period for MSMEs, RBI Clarifies

New Delhi, Dec 17 (KNN) Union Minister for Micro, Small and Medium Enterprises (MSME), Jitan Ram Manjhi, informed Parliament that the Reserve Bank of India (RBI) has no proposal under consideration to extend the NPA (non-performing assets) classification period from 90 days to 180 days.

The clarification came in response to a question raised in the Rajya Sabha regarding the possibility of easing loan repayment norms for MSMEs.

“NPA classification is under the purview of RBI. As informed by RBI, no proposal regarding extension of NPA classification period from 90 days to 180 days is under consideration,” Manjhi stated in a written reply.

Under the current RBI mandate, loans are classified as NPAs if they remain overdue for more than 90 days. While this rule ensures financial discipline, it has posed significant challenges for the MSME sector.

Delayed payments from buyers often result in loan defaults, forcing many MSMEs into the NPA category and limiting their access to fresh credit.

The demand to extend the NPA classification period to 180 days has been long-standing, with MSME stakeholders arguing that such relief could improve their ability to repay loans, ultimately encouraging banks to extend credit to struggling enterprises. Despite these appeals, the RBI remains firm on its existing norms.

In November 2021, the RBI had tightened its framework, directing lenders to classify accounts as NPAs and Special Mention Accounts (SMA) through daily processes rather than month-end reviews.

Additionally, loan accounts could only be upgraded to ‘standard’ status once all overdue principal and interest payments were cleared.

On a positive note, MSME asset quality has shown improvement. Gross NPAs in the sector declined to Rs 1.25 lakh crore as of March 2024, down from Rs 1.30 lakh crore in March 2023.

As a percentage of outstanding credit, MSME NPAs fell from 11.03 per cent in March 2020 to 4.46 per cent in March 2024, reflecting a steady recovery.

However, concerns persist. A FICCI-IBA Bankers’ Survey in September 2024 warned of a potential rise in MSME NPAs over the next six months.

The survey, involving 22 banks representing 67 per cent of the industry, underscores the sector’s ongoing vulnerability.

The government and RBI continue to explore alternative measures to strengthen MSME financing, but for now, the 90-day rule remains unchanged.

(KNN Bureau)