Monetary policy review: RBI extends helping hand to MSMEs, realtors

Extends restructuring window for MSME loans, DCCO of project loans for commercial realtors

The Reserve Bank of India (RBI) on Thursday extended the window for one-time restructuring of loans given to micro, small and medium enterprises (MSMEs) to December 31. Earlier, it was earlier on March 31.

Under this plan, lenders can essentially restructure the loans to MSMEs without reclassifying their asset class.

Also, in a major relief to the real estate sector, the RBI allowed extending the date of commencement of commercial operations (DCCO) of project loans for commercial real estate by a year without downgrading the asset.

The extension of restructuring window for MSME loans by the RBI comes after the Budget announcement, wherein Finance Minister Nirmala Sitharaman had urged the central bank to extend the window until March 31, 2021. She in her Budget speech had said the restructuring window provided by the RBI helped more than 500,000 MSMEs in the last one year.

“…It has been decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST registered MSMEs that were in default as on January 1, 2020. The restructuring under the scheme has to be implemented latest by December 31, 2020”, the RBI said.

This window given by the RBI will enable lenders to restructure MSME loans without re-classification of the accounts, which were in default as of January 1, 2020. Earlier, the RBI had allowed a one-time restructuring of MSME loans that were in default but “standard” as of January 1, 2019, without an asset classification downgrade. But the RBI has added a caveat — the restructuring window will only apply to good services tax (GST)-registered MSMEs. Experts believe had the restructuring scheme came without the GST caveat, the quantum of loans restructured under the scheme would have been much higher.

“Those MSMEs which are on the verge of becoming NPAs will be saved,” said Ashok Kumar Pradhan, MD and CEO of United Bank of India.

According to Rajnish Kumar, chairman State Bank of India: “Extending the date of restructuring of MSME advances will also help the sector navigate the current business downturn and is a logical corollary of the Budget announcement”.

The RBI data suggests in the micro and small segment, credit growth has been negative (-3.4 per cent) in the first eight months of the current fiscal year (until November end). For medium enterprises, it was -3.6 per cent. On a year-on-year basis, credit growth until November end in micro and small, as well as medium enterprises, has been negative 0.1 per cent and 2.4 per cent, respectively. Also, the TransUnion Cibil data shows non-performing assets (NPAs) in the MSME segment rose from 11.7 per cent in September 2018 to 12.2 per cent in September 2019.

According to experts, the MSME sector has been grappling with issues like delayed repayments and muted demand in the current economic environment. Meanwhile, the RBI also said to further strengthen monetary transmission; it has decided to link pricing of loans by scheduled commercial banks for medium enterprises to an external benchmark, effective April 1, 2020.

“The move will accelerate the transmission of interest rate movement to the (MSME) sector and lighten interest burden on them (MSMEs). Further, the extension of the one-time restructuring window for MSMEs will bring some relief to the sector and keep sectoral NPAs under control,” said Krishnan Sitaraman, senior director, CRISIL Ratings.

As far as extending the DCCO of project loans for commercial real estate by a year without downgrading the asset is concerned, the experts believe this will nudge developers to complete the stuck projects, rather than focus on their liquidity issues.   “The extension of DCCO of project loans for commercial real estate by another year will allow the real estate sector to focus on project completion,” Kumar said.

This move will come in handy for both developers and housing finance companies (HFCs), which have a considerable wholesale portfolio. Shares of HFCs rallied sharply after the RBI’s relief to the real estate sector. Shares of Indiabulls Housing Finance gained the most (15.3 per cent), followed by LIC Housing Finance and PNB Housing Finance which rose 8.2 per cent and 4.9 per cent, respectively.  

The RBI has said this move will complement the steps the government has taken to ease the stress in the sector. The government last year had announced the setting up of an alternative investment fund to give a cushion to developers for their unfinished projects. SBICAP Ventures, a fund management arm of SBI, is managing the realty fund.

Shishir Baijal, chairman and managing director, Knight Frank, said: The RBI has taken note of the concerns of the real estate sector. The long-standing industry demand for asset classification has been addressed. This will augment the liquidity situation for developers, too.