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Restructuring of MSME loans
Why is it in the news ?
- The Reserve Bank of India (RBI) allowed lenders to recast loans of stressed micro, small and medium enterprises (MSME).
- RBI has relaxed the provisioning norms for lenders for restructuring loans of up to Rs.25 crore.
- The move came after a demand from the government for a debt recast package for micro, small and medium enterprises (MSMEs).
More in the news
- RBI has decided to permit a one-time restructuring of existing loans to MSMEs that are in default but ‘standard’ as on January 1, 2019, without an asset classification downgrade.
- The central bank’s board on 19 November advised RBI to consider a scheme to recast loans of MSMEs, which have been hurt by the disruption caused by demonetization and GST.
- The restructuring has to be implemented by March 31, 2020.
- A provision of 5% of the total outstanding loan, in addition to the money already set aside to cover potential losses, will have to be made for such borrowers.
MSMEs Classification
- As per this new classification, the MSMEs are categorized in term of business turnover.
- This is in place of the previous classification based on investment made in plant.
- The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is amended to define units producing goods and rendering services in terms of annual turnover as follows:
- A micro enterprise will be defined as a unit where the annual turnover does not exceed Rs 5 crores;
- A small enterprise will be defined as a unit where the annual turnover is more than Rs 5 crore but does not exceed Rs 75 crore;
- A medium enterprise will be defined as a unit where the annual turnover is more than Rs 75 crore rupees but does not exceed Rs 250 crore.
Source
The Hindu.