Once an account figures in SMA, the account becomes a pariah both inside as well as outside the bank, jeopardizing the normal banking operations. This is creating false alarms, even resulting in forced closure - Anil Bhardwaj, Secretary General, Fisme

Federation of Indian Micro and Small & Medium Enterprises (Fisme) has urged the new government to review the special mention account (SMA) framework and introduce a liberal restructuring optionin the non-performing asset (NPA) policy.

SMAs are accounts which exhibit signs of stress resulting in default in timely servicing of debt obligations, but are yet to be classified as NPAs. According to the extant policy, banks are required to put accounts with exposure of Rs5 crore into three categories: SMA-0, if account shows signs of incipient stress even if principal or interest is not overdue for more than 30 days; SMA-1, if principal or interest payment is overdue for 31-60 days; and SMA-2, if principal or interest payment overdue for 61-180 days.

“Once an account figures in SMA, the account becomes a pariah both inside as well as outside the bank, jeopardizing the normal banking operations. This is creating false alarms, even resulting in forced closure,” said Fisme secretary general Anil Bhardwaj.

Many micro and small & medium enterprises (MSMEs) affected by the Covid pandemic could not avail the facility of the Emergency Credit Line Guarantee Scheme (ECLGS) even though they are eligible for it.

Then there is the issue of bank loan rating (BLR). If the exposure of banks to an MSME account is beyond a threshold, they insist on getting a third-party rating called BLR. The Reserve Bank of India (RBI) has clarified to us that it is not mandatory, just an advisory for banks, Bhardwaj said, but the practice continues.

Rating agencies have the capacity to rate listed companies only. Hardly any MSME got investment grade rating, he added. As a consequence, MSMEs are forced to pay higher interest rates and provide additional collateral security. Besides, the practices of rating agencies are ‘monopolistic and rapacious.’

The BLR practice needs to be done away with, Bhardwaj said.

Further, quality control orders or QCOs should be issued only after proper consultation with the stakeholders, the Fisme official said.

To enhance the resilience of our export-oriented MSMEs, he proposed the establishment of a dedicated disaster support mechanism.India needs to revamp trade promotion policies and focus resources on Asia on a war footing, Bhardwaj said.