The Union government is considering extending the NPA classification period for MSME loans from 90 days to 180 days in the FY25 Budget.
The Centre may extend the non-performing assets (NPA) classification period for loans given to micro, small, and medium enterprises (MSMEs) from the current 90 days to 180 days window in the Union Budget for FY25.
MSMEs are vital to job creation in India, contributing around 29 percent to the country’s gross value added and approximately 45 per cent to its exports. However, these enterprises often struggle to get their payments on time, which can lead to loan repayment defaults.
To address these issues, the government has mandated a 45-day payment cycle for goods and services purchased from SMEs starting April 2024. However, this timeline might see further adjustments due to complaints from various quarters.
The senior official also told the publication that potential relaxations for special mention accounts (SMA) for MSMEs are in the cards. SMA is a classification used by banks to identify loans showing signs of stress. According to the official, SMA-0 might be increased from 30 days to 60 days, SMA-1 from 60 days to 90 days, and SMA-2 from 90 days to 120 days.
RBI data indicates that in FY24, the share of outstanding bank credit to MSMEs was 28 percent of the total credit to the industry segment, with the remaining 72 per cent going to large enterprises. In 2023, the Ministry of MSMEs informed the Rajya Sabha that an expert committee estimated the overall credit gap in the sector to be between Rs 20 trillion and Rs 25 trillion.
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