RBI panel on MSMEs to chalk out plan to resolve liquidity crisis in sector

The panel would cover all the factors affecting the sector's performance and what would be the viable solution for its sustainability

The Reserve Bank of India’s (RBI’s) expert committee on the micro, small and medium enterprises (MSMEs) sector will chalk out a plan which would first focus on the measures to resolve liquidity crunch the sector has been facing.

The panel, headed by former securities and exchange board of India (Sebi) chairman U K Sinha, is expected to meet at the RBI headquarters in Mumbai next week, where it would cover all the factors affecting the sector’s performance and what would be the viable solution for its sustainability.

The committee includes finance ministry officials, heads of public and private sector banks and officials from the Indian Institutes of Management.

However, before executing the plan, it would examine the financials of these firms — such as their assets and liability and promoters’ equity at a given point in time, said a person privy to the development.

Also, the panel would see whether the said company should be considered for further leeway in terms of restructuring.

The regulator formed the committee a day after it allowed a one-time restructuring of existing debt up to Rs 25 crore for MSMEs which have defaulted on payment but the loans given to them have continued to be classified as standard assets.

“The committee would see whether the account of an MSME classified as standard assets would be given further time. Current institutional framework for MSMEs needs a proper review and accordingly methodology for their revival will be decided,” the person said.

Sources say that the panel will focus on a practical solution instead of theoretical ones and will seek feedback of stakeholders and industry while framing new policy or changing the existing rules for the sector. 

The panel has been given a mandate to suggest long-term solutions for the economic and financial sustainability of the sector and review the current institutional framework in place to support it. The Sinha-led panel has also been asked to study the impact of the recent economic reforms on the sector and “identify the structural problems affecting its growth”.