The bonanza announced by Reserve Bank of India (RBI) is likely to breathe fresh life into a raft of stressed micro, small and medium enterprises (MSMEs). After much prodding by the government, the RBI has allowed lenders to do a one-time restructuring of loans of up to Rs 25 crore.
Recasting loans of MSMEs, which faced the double fury of demonetisation and the introduction of Goods and Service Tax (GST), was on the cards for some time. RBI has now asked each bank and non-banking financial company (NBFC) to formulate a loan recast policy that encompasses a framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.
At Rs 23 lakh crore, the MSME sector accounts for one-fourth of the total commercial lending in India. Of this, the exposure which is up to Rs 25 crore is Rs 13 lakh crore. Growth is skewed towards the lower end of the spectrum with an average ticket size of less than Rs 50 lakh.
The move will radically alleviate cash crunch woes of most MSMEs and boost manufacturing activity across the country. It may also help create jobs as MSME sector is a major generator of employment.
They also make a significant contribution to India's GDP and economy's overall growth. The move will definitely help revive the ecosystem for small businesses in the country.