A big chunk of loans to micro, small and medium enterprises (MSME) worth some Rs 15,000 crore could slip over the next 10 months. In fact, the bigger chunk could slip sooner since companies have just 30 days to repay their dues.
These loans would have turned non-performing assets (NPAs) a long time ago had the Reserve Bank of India (RBI) not given banks a breather. A June 6, 2018, notification had allowed banks and NBFCs to temporarily classify their exposure to all MSMEs, including those not registered under the goods and services tax (GST), as a standard asset as long as it was smaller than Rs 25 crore and standard as on August 31, 2017. MSME loans worth Rs 7,995 crore had been retained by banks as standard under this central bank notification.
Again, a January 1 circular of the Reserve Bank of India (RBI) had permitted banks to do a one-time restructuring of existing loans to MSMEs and classify them as ‘standard’ without a downgrade in the asset classification. Consequently, PSBs had restructured 1.53 lakh accounts with an outstanding of Rs 5,194 crore. The data has been compiled by FE from the Q4FY19 notes to accounts of 18 PSBs. The amount could be closer to Rs 15,000 crore since the results of Dena Bank and Vijaya Bank, which have been merged with Bank of Baroda, have not been declared.
Bankers offer mixed views on what could be the fate of accounts that have escaped the NPA tag because of the two circulars. PK Gupta, managing director (MD) – retail and digital banking, State Bank of India (SBI), told FE that the success of restructuring will depend on the status of operations at each MSME borrower.
“Ultimately, for restructuring to be successful, the unit should be able to restructure their operations, get more orders so that they are able to service loans,” he said. “So if it is a temporary liquidity problem, normally the restructuring works. But, if there are structural viability issues, then it will not work.” SBI has retained loans worth Rs 242 crore as standard under the June 2018 circular.
Union Bank of India has retained the largest amount as standard under the June circulars — loans worth Rs 2,637 crore, followed by Punjab National Bank (PNB), which has retained loans worth Rs 2,340 crore as standard. Bank of Baroda (BoB) is third in line, with a Rs 1,659-crore exposure being held up by the two circulars. Some others sound more confident. PS Jayakumar, MD and chief executive officer, BoB, said after the bank’s Q4FY19 results, “If we expected it to fail, we wouldn’t have restructured it.” He added that since there are many conditions that must be satisfied by a borrower in order to avail restructuring, the risks are limited. “Much of restructuring is really hand-holding.”
The January 2019 circular requires restructuring to be implemented by March 31, 2020, while the June 2018 notification says that for repayments falling due May 1, 2019 onwards, the existing norm of recognising a defaulter account as non-performing asset (NPA) after 90 days will kick in.