NEW DELHI: An intense lobbying exercise, for the reappointment of Raghuram Rajan as the Reserve Bank of India (RBI) govenor for the second time, is likely to find an unusual hurdle in the micro small and medium enterprise (MSME) sector.
The surge in non-performing assets (NPAs) — loans that do not yield returns — and stringent provisioning norms for these loans chalked out by the RBI have forced banks to turn off their lending tap for the sector.
MSMEs and their associations have shown their dissatisfaction with Rajan, who has been instrumental in mandating banks to clean up their balance sheets by March 2017. Total advances to priority sector, which includes MSMEs, stood at Rs 2.10 lakh crore at the end of 2015, of which 34% were classified as NPAs. Besides MSMEs, these NPAs included large-scale agriculture loans and loans to segments, such as, weaker sections and SC/ST, according to RBI data.
The Federation of Indian Micro and Small and Medium Enterprises (FISME) could write to the government seeking a change of guard at the RBI once Rajan’s term ends in September, sources said.
The central bank, in 2013, introduced the concept of “special mention accounts” for loans outstanding for 30-90 days after the payment due date. According to guidelines, an account could also be termed as SME-0 even if the principal or interest payment is not overdue for more than 30 days, in case the banker feared delinquency. The account is termed as SMA-1 in case of an overdue in payment of principal or interest between 31 and 60 days, and SMA-2 when the overdue is between 61 and 90 days.
“How unrealistic it is to term an MSME account SMA for not paying loan installment within 30-90 days when most of their buyers, whether public or large private sector companies, seldom pay them before 180 days” said Neeraj Kedia, chairman of banking committee, FISME.
The MSME sector contributes 8% to the country’s GDP. According to the 12th Plan, the sector needs Rs 24,000-crore capital.