look news india
Mumbai: While the current fiscal year's budget has encouraged banks to provide loans to micro, small and medium enterprises (MSMEs), banks are concerned about such loans turning into non-performing assets (NPAs). Banks want the rules for classifying bad loans to be relaxed.
The Finance Minister has announced a new mechanism in the Budget that will enable MSMEs to continue accessing bank loans even during times of stress.
During the Special Mention Account phase, MSMEs require funds to continue their business. However, the Finance Minister has announced to support credit availability through guarantees from a government-induced fund.
If a company defaults on repayment, the bank's risk profile may deteriorate. In such a situation, there is no point in lending more and the borrower has to bear the risk of defaulting against the bank, said a public sector bank official.
If the borrower defaults, the bank classifies it as a special mansion account.
Stressed borrowers need more time to improve their situation, another banker said.
MSMEs do not have adequate collateral and their financial records are not in line with banking standards. Credit guarantee for MSMEs is a step in the right direction but its implementation and outcome remain to be seen, said a statement from Crisil.
There has been an increase in government-guaranteed MSME loans during the Corona period.