MSMEs urge FM Nirmala Sitharaman to review NPA classification norms

In its suggestions to the finance ministry, the Federation of Indian Micro, Small and Medium Enterprises has said the greatest need that has emerged is the flexibility in assigning NPAs

Stung by the second wave of the Covid-19 pandemic, small businesses have urged Finance Minister Nirmala Sitharaman to review classification norms for bad loans and rationalise import duty on key raw materials such as iron and steel.
 
The Federation of Indian Micro, Small and Medium Enterprises (FISME) in its suggestions to the finance ministry has said that “more than the requirement of additional funds, the greatest need that has emerged is the flexibility in assigning non-performing assets (NPAs)”.
 
The industry body has said the framework to classify accounts under Special Mention Account (SMA) framework has been devised for normal times, and should be revised for pandemic-hit years. Accounts are classified as SMA-0 if principal and interest is overdue between 1 to 30 days; SMA-1 and SMA-2 if repayment is overdue between 31 to 60 days, and 61 to 90 days, respectively.

 

A revision is needed because payment cycles are longer now and markets have been disrupted because of lockdowns, the industry body said. “Banking cannot be just excel-sheet based; the system ought to provide much needed flexibility to the banker so that these facts could be factored in,” FISME said in the letter to Sitharaman on Tuesday.
 
Small businesses have also sought a legislation providing protection from prosecution due to non-compliance during the pandemic up to March 31, 2022. The ratings of such businesses should also not be aff­ected during the period, it said. “Government needs to convey down its rank and file that no MSME should be shut due to com­pliance-related rigidity," it said.

 
The umbrella body of small businesses has also suggested that import duty on key raw materials such as iron, steel, copper, aluminium and polymers should be rationalised as domestic producers have been unethically raising prices for the past six months. Close monitoring of prices of top 10 raw material should also be done by secretaries of key economic ministries. Sitharaman has been meeting industry associations over the last one week to discuss the disruptions caused by the second wave, and had sought their inputs.
 
The finance ministry has at the moment ruled out any fiscal stimulus for the industry.

 
Last year’s nationwide lockdown severely impacted small businesses, as they struggled with job loss and liquidity crunch. Thereafter, the government announced a slew of measures for MSMEs, including a ~3 trillion government-backed loan scheme. The Emergency Credit Line Guarantee Scheme was recently extended up to June 30 or until disbursement of ~3 trillion is complete.
 
While the economic situation is not as severe at the moment, there has been some disruption because of localised curbs across states such as Maharashtra.