NBFCs request RBI to extend one-time restructuring scheme of MSME till March 2022

Non-banking finance companies (NBFCs) have requested the RBI to extend the one-time restructuring scheme of MSME advances till March 31, 2022 as they are unable to revive their businesses.

The RBI, in February 2020, 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.

The Finance Industry Development Council, an industry body of NBFCs in a letter to RBI Governor Shaktikanta Das, 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 for 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 FIDC wrote. It also urged the RBI to allow restructuring of certain MSMEs loans that already have got the similar relief under the same scheme during the first wave of COVID-19, but are now facing challenges. The FIDC 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 existing unencumbered MSME pool originated by NBFCs. And 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% which was recently reviewed to 50%.

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% 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 annum on the loans under CGTMSE.

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