Good news for MSMEs: Govt may increase time period for NPA to 180 days

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In the upcoming Union Budget for FY25, the government is considering extending the non-performing assets (NPA) classification period for loans to micro, small, and medium enterprises (MSMEs) from 90 days to 180 days, as reported by Business Standard.

Importance of MSMEs in India’s Economy

MSMEs play a crucial role in India’s economy, contributing significantly to job creation, gross value added (29%), and exports (45%). Despite their economic impact, MSMEs often face challenges in receiving timely payments, leading to defaults on loan repayments.

Government’s Initiatives to Address Payment Delays

To mitigate these challenges, starting from April 2024, the government has mandated a 45-day payment cycle for goods and services procured from SMEs. However, adjustments to this timeline may be necessary following feedback from various stakeholders.

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Proposed Relaxations for Special Mention Accounts (SMA) in MSME Sector

In addition to NPA extensions, the government is contemplating relaxations for Special Mention Accounts (SMA) classifications specific to MSMEs. SMA classifications are used by banks to monitor loans under stress. Proposed changes include:

  • Increasing SMA-0 from 30 days to 60 days
  • Increasing SMA-1 from 60 days to 90 days
  • Increasing SMA-2 from 90 days to 120 days

Financial Overview of MSME Credit and Credit Gap

Recent RBI data highlights that in FY24, MSMEs accounted for 28% of the total bank credit to the industry segment, with the remaining 72% allocated to large enterprises. In 2023, the Ministry of MSMEs estimated a credit gap in the sector between Rs 20 trillion and Rs 25 trillion, underscoring the significant financial challenges faced by MSMEs.

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1 COMMENT

  1. rules of NPA category must be same, and there should not be discrimination, days of categorisation of NPA to 180 days for all segments.

    The Givt. should provide relief for every sector

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