The restructured accounts will be eligible for benefits like access to fresh working capital loans and additional finance under the stimulus package.
Commercial banks in Karnataka restructured 29,404 accounts of micro, small and medium enterprises (MSMEs) involving close to Rs 1,000 crore by the end of May 2009. This is around 70 per cent of the total number of accounts eligible for restructuring in the state.
A report prepared by the Reserve Bank of India (RBI) has revealed that 41,564 accounts (about 8 per cent of the total MSMEs registered in the state) were eligible for restructuring as on September 1, 2008. In the next two months, the banks are expected to restructure the remaining 12,160 accounts. Only performing accounts were considered for restructuring and have been converted into standard assets, said B Srinivas, regional director, RBI, Bangalore.
The government of India, as part of the economic stimulus package, had earmarked Rs 16,000 crore through SIDBI, Exim Bank and National Housing Bank to revive troubled MSMEs in the country. “A second round of restructuring could also be considered, to bring troubled small industries back on the growth path,” he added.
In August 2008, the RBI had issued comprehensive guidelines for restructuring of advances by banks. Subsequently, in view of global developments, certain facilities were granted up to June 30, 2009.
A restructured account is one where the bank, for economic or legal reasons relating to the borrower’s financial difficulty, grants the borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advances/securities, which would generally include, among other things, alteration of repayment period/repayable amount/the number of installments/rate of interest (due to reasons other than competitive reasons).
The restructured accounts of MSMEs will not only get an opportunity to make their repayment in a staggered manner, they will also be eligible for other benefits like access to fresh working capital loans and additional finance under the stimulus package.
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The deadline for restructuring the remaining 30 per cent of SME accounts is end June. The account restructuring will, however, be available only to entities that have remained as standard assets till December 2008, Srinivasan stated.
According to the State Level Bankers’ Committee (SLBC), Karnataka is home to around 508,000 units classified under the MSME category. Of them, 400,000 units are micro enterprises, 73,000 units are small and 35,000 units are medium enterprises. As on December 2008, the outstanding loan amount from these units was an estimated Rs 2,300 crore.
In 2008-09 advances from commercial banks to MSMEs in Karnataka grew by 23.9 per cent to Rs 17,320 crore, compared to the previous year. Of this amount, micro enterprises accounted for Rs 5,317 crore, small enterprises for Rs 7,372 crore and medium enterprises for Rs 4,631 crore.
The RBI has asked the SLBC to evolve a suitable format for monitoring the actions for the banks and the stake holders.
In addition to the stimulus package announced by the Centre to rescue SMEs, the Karnataka government has undertaken some measures to help the sector. Over the last one year, the state government has released Rs 100 crore towards the subsidy for plant and machinery purchased by MSMEs, which was pending for a long time.
During the year 2009-10, the government is planning to release another Rs 109 crore subsidy to SMEs in the state, a senior official in the department of industries and commerce said.
The state industries department will also come out with a one-time settlement (OTS) scheme for companies to settle their outstanding loans borrowed from the department in the last four decades.
According to officials in the department, about 25 per cent of the industrial units in the state were either sick or closed before the start of the downturn. Currently, this number has gone up to 40 per cent. The new OTS scheme will provide an opportunity to revive these units, officials said.
About 40 years ago, the department of industries and commerce used to lend directly to SMEs, but stopped lending activity in the 1980s. The loans extended during those days have now become non-performing. Currently, the department does not even know how many borrowers are alive and how many are still functional.
It is actively considering introduction of a scheme to recover the outstanding principal amount in five installments and waive interest accrued on such loans. It is also thinking of giving a discount to those who are repaying loans promptly, officials added.