NBFCs seek extension of MSME restructuring scheme till March 2022

Non-banking finance companies (NBFCs) have requested the Reserve Bank to extend the one-time restructuring scheme of MSME advances till March 31, 2022, as these players are unable to revive their businesses. In February last year, the Reserve Bank had permitted one-time restructuring of existing MSME advances, classified as ‘standard’ without downgrade in the asset classification subject to certain additional provisioning and other compliances.

The time limit for implementation of the scheme was till December 31, 2020.

In a recent letter written to RBI Governor Shaktikanta Das, FIDC, an industry body of NBFCs, said due to the severe second wave of COVID-19, the micro, small and medium enterprises (MSMEs) have not been able to revive their economic activities and are in urgent need of support from the lenders.

“Considering the challenging environment for MSMEs and lenders, it will be helpful, if the RBI extends the restructuring scheme till at least March 31, 2022,” the Finance Industry Development Council (FIDC) wrote.

NBFCs primarily cater to the funding needs of micro, small and medium enterprises (MSME), including retail and wholesale traders.

The industry body also urged the RBI to allow restructuring of certain MSMEs loans that already have got similar relief under the same scheme during the first wave of COVID-19, but are now facing challenges.

The FIDC has also requested the central bank to provide priority status lending (PSL) classification benefit for bank lending to NBFCs on a permanent basis. Earlier this month, the RBI extended the PSL benefit by six months till September 30, 2021.

The letter said under the on-lending model, only fresh loans granted by NBFCs are allowed PSL benefit and the existing unencumbered pools of eligible PSLs do not qualify for such classification benefit.

The industry body urged the RBI to allow bank refinance against the existing unencumbered MSME pool originated by NBFCs.

In a separate letter to MSME minister Nitin Gadkari, the FIDC requested to reinstate guarantee cover under Credit guarantee fund scheme for NBFCs (CGS-II) to 75 per cent which was recently revised to 50 per cent.

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) had framed CGS II for providing guarantees in respect of credit facilities extended by eligible NBFCs to micro and small enterprises (MSE) borrowers.

“We urge upon that the guarantee cover may please be reinstated to earlier 75 per cent levels, particularly in these uncertain and stressful times,” the letter said.

As per the modification in the scheme, NBFCs can charge interest rate up to 18 per cent per annum on the loans under CGTMSE.

The FIDC requested the government not to limit the lending rate as capping the maximum lending rate to 18 per cent would defeat the very purpose of CGTMSE Scheme for NBFCs.

With COVID-19 pandemic and the current state of MSMEs and other small borrowers, the industry body requested to re-launch the Interest Subvention Scheme and extend it to both MSME and retail and wholesale traders.