Non-bank lenders have approached the Reserve Bank of India(RBI) and sought to extend the MSME recast scheme by more than a year, in light of the fresh surge in Covid cases. NBFCs have told the RBI that since the MSMEs have been unable to revive their business activities, they are in urgent need of financial support.

The RBI had allowed a one-time restructuring of standard MSME advances until December 2020.

“Considering the severe second wave of Covid-19, the MSMEs, as also the retail and wholesale trader industry have not been able to revive their economic activities and are in urgent need of support from the lenders, it will be helpful, if the RBI extends the recast scheme till at least March 31, 2022,” NBFC industry body FIDC said in a letter to RBI Governor Shaktikanta Das.

FIDC has also requested that the recast scheme be extended to all those MSME clients that had got payment relief under the scheme during the first Covid wave.

The non-bank lenders have also requested the regulator to classify bank liquidity support to NBFCs for on-lending to MSMEs as a priority sector on a perpetual basis. Currently, fresh loans to MSMEs have a PSL tag until September. The RBI has been continuing to extend the period for on-lending benefit by six months at the time of each review.

“Under the on-lending model, only fresh loans granted by NBFCs are allowed for PSL benefit, the existing unencumbered pools do not qualify for such classification benefit. We request the RBI to allow refinance by banks against existing unencumbered MSME pools originated by NBFCs,” the FIDC said.

“Over 90 days past due balances indicate higher overdue levels than in the retail sector, even with regulatory relief camouflage,” said Manish Jaiswal, MD, Magma Housing Finance. “While businesses had begun to rebound in Q4 of FY21, the second Covid wave and lockdowns seem to suggest that recovery can be a long drawn arduous process.”

Most MSMEs’ cash-flows are under deep stress with top line shrinkage of 30-40% in FY21. Industry estimates suggest that Covid-19 could push revenue growth for MSMEs to -17% to -21% in FY21.

Manali bhanushali
Author: Manali bhanushali

Manali Bhanushali