MSMEs present an additional $70 bn lending opportunity to banks

The micro, small and medium enterprises (MSME) sector provides the banks with a lending opportunity of USD 70 billion, says a report. The MSME sector has been down in the dumps since the note-ban and the soon-to-be-followed implementation of the uniform tax regime GST, forcing millions of units to down shutters causing huge job losses.

This has made the government force the Reserve Bank to offer a special dispensation last month under which the banks were allowed to recast stressed MSME loans under Rs 25 crore outside the NCLT route.

"Small and medium units together have a potential of taking USD 70 billion in formal credit from banks," industry lobby Assocham and Ashvin Parekh Advisory Services said in a joint report Tuesday.

MSMEs form an important component of the economy and contribute significantly to GDP, exports, industrial output and employment generation.

The report said although many MSMEs do receive formal credit from banks, the sector is still underserved with only 40-70 percent of financial requirements being met by banks.

MSMEs account for over USD 55 billion of lending currently, there is still a huge gap that can be addressed by financial institutions in the near term, it said.

The report further said there is a major concern among financial institutions on the existing lending turning out to be NPAs, as MSMEs do not get payments on time, which in turn hampers the repayment cycle.

In January, the Reserve Bank had announced restructuring of MSME accounts under Rs 25 crore that have become stressed. The RBI's one-time restructuring of MSME loans that are in default but standard as on January 1, 2019, without an asset classification downgrade.

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Restructuring has to be implemented by March 2020. Lenders would have to make 5 percent provisions on these accounts, RBI had said.