While maintaining a status quo, the Reserve Bank of India (RBI) today provided major relief to MSME borrowers, registered under the Goods and Services Tax (GST), by extending their repayment of debt deadline.
RBI said, "It has been represented to us that formalisation of business through registration under GST had adversely impacted the cash flows of the smaller entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and NBFCs."
As per the new guidelines, RBI says GST-registered MSMEs - their overdue amount as on September 1, 2017 and payments due between September 1, 2017 and January 31, 2018, be allowed by banks and NBFCs to be paid not later than 180 days from their original due date, without a downgrade in asset classification.
Currently, banks and NBFCs in India generally classify a loan account as Non-Performing Asset (NPA) based on 90 days and 120 days delinquency norms, respectively.
As a measure of support to these entities in their transition to a formalised business environment, it has been decided that the exposure of banks and NBFCs to a borrower classified as micro, small and medium enterprise under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, shall continue to be classified as a standard asset in the books of banks and NBFCs subject to the following conditions :
Thus the decision follow the government’s announcement that banks must improve credit flow to the MSMEs. it will lead to improving access to credit for MSMEs.
To conclude, the relief provided by RBI through this circular shall smoothen the cash flow management which is required for working capital for the MSMEs. This is a great relief, especially for entities that are still awaiting GST refund from the government. This is a positive move to address the practical challenges faced by the entities in the transitional GST phase.
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