Debt burden to shrink

LOAN RESTRUCTURING: The recent RBI guidelines will prevent non-performing assets from piling up.

The guidelines issued to the urban cooperative banks by the Reserve Bank of India (RBI), for restructuring the debt burden faced by small and medium enterprises (SMEs) has come as a relief to the cash-strapped sector.

Analysts also pointed out that RBI guidelines would allow the banks to act proactively and prevent non-paying assets from piling up. Said K Unnikrishnan, senior vice-president, Indian Banks Association,

"This will give the SMEs some time to rework their finances. And also allow the banks to intervene in a proactive manner without waiting for a company to become sick."

Said R Y Angle, former chairman of the Confederation of Indian Industry's western region committee on SMEs, "This will give the SMEs that have borrowed from urban co-operative banks some badly needed relief."

Unnikrishnan pointed out that as urban co-operative banks lend upto 60 per cent of their portfolio to the priority sector, mainly SMEs, they will benefit by the resultant drop in NPAs from their balance sheets.

According to the guidelines issued by the RBI on March 30, all corporate and non-corporate SMEs with a debt of upto Rs 10 crore are eligible to apply for the new package.

The circular clarifies that the units must become financially viable in seven years' time, post restructuring, and repay the loan in 10 years. The package will be implemented within 60 days from the date of receipt of the request.

Added Angle, "It is time that the Indian SMEs started coming up with viable projects. Today, if you have a good project, finance is easy to find, especially, if it is an innovative one. Otherwise, they will miss out on the opportunites that are coming up."