MSME loans restructuring a step backwards given RBI’s earlier stance: Fitch

The decision to restructure loans of up to Rs 250 million for the MSME sector is a step backwards and the risks to the banking sector will manifest in the next 6-9 months, Fitch Ratings said Wednesday. The board of the Reserve Bank last week advised the RBI that it should consider a scheme for restructuring of stressed assets of MSME borrowers with aggregate credit facilities of up to Rs 250 million, subject to conditions necessary for ensuring financial stability. In one way, it is a step backwards given RBI’s previous stance to do away with all restructuring. It clearly reflects stress in the MSME sector although we expect risk to manifest in the next 6-9 months, Guha said. Relaxation of lending norms to spur growth is never a good strategy he said, adding the legacy problem loans will continue to be a bigger drag on the MSME sector’s asset quality until March 2019. There is adequate evidence in the form of $140 billion of NPL (non-performing loan) stock that the sector is currently grappling with, which, in my opinion, is a direct result of the unbridled lending of the past, Guha said.

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