New Delhi, July 20 (KNN) The already difficult credit scenario of the country is being further vitiated by the multiple directives of the Government  and RBI.

Some glaring example is the parallel running of the SMA classification and the Insolvency  and Bankruptcy code.

Notified in May, 2017, the Insolvency and Bankruptcy code provide clear time bound mechanism for addressing non performance  of any entity, corporate or otherwise, in servicing bank or operational dues.

However, a parallel guideline of RBI is still in vogue which classifies the bank loan accounts as ‘special mention accounts (SMA)’, even after just 30 day default.

Under the code, any creditor may approach the authority for resolution of the non performance and the decision must be taken within a period of 180 days.

The code also specifies restructuring or  transferring of the ownership of the debtor, as may required for resolution, by a committee of creditors under the mentorship of an expert and overall jurisdiction of the authority concerned.

The SMA guidelines, a pure ingenuity of Indian policy makers call for a ‘corrective action plan drawn by the Banker(s).

Under SMA the Banks do not have any hard and fast deadline to resolve the issue and only RBI may intervene, if required.

So while under the Insolvency and Bankruptcy code, there is a time bound relief in sight, the SMA  treatment may continue indefinitely and ultimately the loan may become irrecoverable.

While the Banks are no gainer by declaring an account NPA, the most losers are the MSMEs, whose entire operations are being throttled by the banks, just being defaulter for a month.

Further, it is known to all Bankers that a number of seasonal and incidental variations in operations  can make any account to default temporarily and in no case this should be taken as  an indicator for sickness.

In fact, an existing guideline of RBI itself term an account defaulter only if it fails to service debts for consecutive 3 months.

The entire MSME fraternity was bringing the futility of the SMA classification, rather its damage to the sector, for the last 3 years, but with little avail.

It may be hoped that with the Insolvency and Bankruptcy code in place, RBI will withdraw the SMA classification order.

With  an internationally accepted insolvency code in place, Banks need no other tool to recover their loan and this is also fair to the defaulter, as he will have an opportunity to present his case and suggest alternatives. (KNN/ DB)