Centre Mulls Over Easing Credit Woes For MSMEs

The current SMA policy stipulates that banks put accounts with exposure of Rs5 crore into three categories: SMA-0, if an 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 61-90 days

New Delhi: Heeding to the concerns expressed by the representatives of micro and small & medium enterprises (MSMEs), the central government is working on a mechanism to ensure that the rigidities of the special mention account (SMA) framework are done away with.

The Ministry of MSMEs, in consultation with the Department of Financial Services (DFS) under the Ministry of Finance, is working on a proposal for the setting up of a fund to help the enterprises that fall under the rubric of SMAs. This fund, official sources told Bizz Buzz, will provide a guarantee to banks for their continued financing to SMAs.

SMAs are financially stressed accounts even though they have not become non-performing assets (NPAs). The current policy stipulates that banks put accounts with exposure of Rs5 crore into three categories: SMA-0, if an 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 61-90 days.

At present, the problem is that once an account enters the SMA zone, the account finds it difficult to raise working capital, even if the financial stress is short-term and the result of extraneous factors. Often the entry is a false alarm, but the consequences can be debilitating, even closure of the firm.

Many Covid-affected MSMEs were unable to avail the facility of the Emergency Credit Line Guarantee Scheme (ECLGS) even though they are eligible for it.

MSME bodies have been imploring the government and the Reserve Bank of India (RBI) for help. In July, the Federation of Indian Micro and Small & Medium Enterprises urged the RBI to double the threshold period for SMA-2 to 180 days from 90 days.

While the RBI seems unwilling to extend the period, the fund that the government is planning can address MSMEs’ issues, the sources said.