According to a senior government official, the central government has extended the non-performing asset (NPA) classification period for loans to micro, small and medium enterprises (MSMEs) from the current 90 days to 25 in the next fiscal year. I am considering doing 180 days. official

“To provide support and relaxation to MSMEs, the government may extend the period of NPA. Currently, the period of NPA is 90 days, but it can be increased to 180 days. This can be included in the budget. is,” said the senior government official.

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MSMEs are important job creators in India, contributing about 29 percent of the country’s gross value added and about 45 percent of its exports. However, they often face challenges in receiving timely payments, leading to loan defaults.

The government has mandated a 45-day payment cycle for goods and services procured from SMEs from April 2024, which may see further adjustments due to complaints from various quarters.

An e-mail query sent to the Finance Ministry did not receive a reply till the time of going to press.

During the Covid-19 pandemic, the Reserve Bank of India (RBI) temporarily extended the NPA rating period from 90 days to 180 days.

The official further mentioned possible relaxation for Special Mention Accounts (SMA) for MSMEs. SMA is a rating that banks use to identify loans that are showing signs of stress.

SMA 0 may be extended from 30 days to 60 days, SMA 1 from 60 days to 90 days and SMA 2 from 90 days to 120 days, the official said.

According to RBI data, the share of outstanding bank credit to MSMEs in FY24 was 28 percent of total credit to the industry segment, with the remaining 72 percent going to large enterprises. In 2023, the Ministry of MSMEs informed the Rajya Sabha that an expert committee estimated the overall debt gap in the sector to be between Rs 20 trillion and 25 trillion.

Gross NPAs in MSME loans through scheduled commercial banks declined by 14.3 per cent to Rs 1.31 trillion for FY23, from Rs 1.54 trillion in FY22, the ministry informed the Upper House in July 2023.

Krishnan Sankarasubramaniam, former managing director and CEO of Punjab and Sindh Bank, believes that the postponement of NPA and SMA ratings will not have a significant impact on the bank’s asset quality. “However, MSMEs will get a boost if, at the same time, MSMEs are handled carefully as it is a very fertile category,” he said.

Former RBI Executive Director Chandan Sinha noted that the change in NPA classification would not require an amendment to the Banking Regulation Act. “In the budget, the government may announce measures for MSMEs while the final notification may come from the RBI,” he added.

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