New Delhi: The finance ministry is understood to have asked the state-controlled banks to go slow on the recovery of loans from the micro, small and medium enterprises (MSMEs) as the economic downturn may have restricted their capacity to repay the dues on time.

Many economists are of the opinion that the government should concentrate on reviving consumption demand, and to jump-start the consumption cycle money has to go into the common man’s hand. More importantly, the fall in consumption is also adversely impacted by the credit squeeze and a drop in household savings.

It is worth noting that the Reserve Bank of India (RBI) has made it mandatory for banks to link all new floating rate loans to MSME, personal and retail to an external benchmark from October 1. Since Shaktikanta Das took charge as governor last year, the central bank’s Monetary Policy Committee has reduced repo rate by 110 basis points in an attempt to spur growth, but the lenders have passed on just 49 basis points as a relief.

Earlier this year, the banking regulator had allowed a one-time restructuring of existing loans of MSMEs up to Rs 25 crore that was in default but had not become a non-performing asset as on January 1, 2019.

A daily citing unnamed government sources mentioned that the government has asked the lenders not to classify MSME loans below Rs 5 crore as toxic loans if borrowers have not been cleared the dues in time. The Centre has also asked public sector banks to review Mudra loans amid fears of a rise in NPAs in these accounts. Plus, banks have also been asked to ensure that there are no real constraints on credit flow to MSMEs.

The MSME sector is the highest job creator in the country and the sector has the potential to revive the country’s economy and generate more formal jobs, opine analysts.

In 2015, Prime Minister Narendra Modi had launched the Pradhan Mantri Mudra Yojana (PMMY), for providing loans up to Rs 10 lakh to the non-corporate, non-farm small/micro enterprises. Around 11 crore people have been benefited from the Mudra scheme till April this year.

In February this year, Finance Minister Nirmala Sitharaman in her maiden Budget granted Rs 350 crore for the MSME sector under the Interest Subvention Scheme for 2 per cent interest subvention for all GST registered MSMEs on fresh or incremental loans, adding that the interest subvention scheme is likely to benefit about 20 per cent of GST-registered MSMEs.

Published On : 12-09-2019

Source : Times Now News