25-04-2025
Industry body wants reforms for smooth MSME credit flow
An industry body of small businesses has sought changes in banking regulations - particularly
loan classification guidelines
and
third-party rating system
- to ensure smooth credit flow to micro, small and medium enterprises (MSMEs) facing temporary setbacks.
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In a submission to the government, the Federation of Indian Micro and Small & Medium Enterprises (Fisme) has recommended introducing a human interface before categorising loans as special mention accounts (SMAs) and easing the guidelines.
SMA is an early warning system used by lenders to identify accounts at risk of becoming
non-performing assets
(NPAs).
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It categorises loan accounts into different groups based on the number of days an instalment is overdue. "The SMA framework's trigger is automatic, computer-driven, and lacks a mechanism to take into account the qualitative reasons of delay," Fisme said in its representation to the government.
Once an account is tagged as SMA, banks isolate these companies from the credit ecosystem, severely harming their chances of revival, Fisme said.
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The guidelines also encourage the banks to sell the assets of enterprises rather than focus on revival, it added.
"The SMA guidelines at present are designed in a way to bury these enterprises to the ground once they fail to meet their payment obligations, although the cause may be temporary and there is a good chance that these MSMEs could be revived with some support," said Anil Bhardwaj, secretary general of Fisme.
Another flaw flagged by the industry body is the yardstick third-party rating agencies use for evaluating MSMEs' ability to pay back debt. These agencies are suitable for assessing listed companies based on their return on investment (ROI) potential, which differs from evaluating MSMEs for their solvency standing, it said.
