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BW Businessworld

Understanding The Restructuring Of MSMEs

The actual impact of the ongoing third wave of COVID-19 pandemic on the MSME sector will visible largely by the end of this quarter and the upcoming one, as per the experts.

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The government in the last few years, especially after COVID-19, launched several schemes in the MSME sector, however, it needs more intervention on the restructuring side that can help the industry to grow more, according to the experts. 

"There is very limited headroom to meet the volatilities at any time and given the last few years, where we have had great unpredictability, uncertainty, the MSMEs with very thin equity have very little headroom to manoeuvre themselves and continue to remain viable. Initially, when the emergency credit line guarantee scheme (ECLGS) was launched, it was meant for only standard assets and then they made up SME one," said former Dy. MD, Corporate Accounts Group, State Bank of India, Sunil Srivastava. 

Srivastava said that there is a problem in MSMEs because their working capital cycle gets elongated for reasons beyond their control. After that, MSMEs tend to service their interest in installment obligations only on the 88th or 89th day. So precluding SMEs from the ambit of restructuring was not very prudent. Therefore, we had only 50 per cent of MSMEs eligible for the ECLG scheme, he added.

"To me, ECLGS was not for the restructuring of the loan, it was an additional loan given to the MSMEs which are either standard or SME Zero or SME One. These were the ones that largely required restructuring in most of the cases. However, there are cases where MSMEs were under deep stress. The emergency credit line loan has helped them, in fact, in a big way to come out of the liquidity problem," said Advisor, Chamber of Indian Micro, Small and Medium Enterprise, Mukesh Mohan Gupta. 



However, Gupta added that many MSMEs are those which did not require these loans. Hence, they did repay the high-cost debt out of this emergency credit line. The important scheme which was launched to restructure the MSME loan was the credit guarantee scheme for subordinate debt (CGSSD). In this, Rs 20,000 crore scheme was the main actual initiative for restructuring of MSMEs. 

"Most of the restructuring happened in quarter 4 of 2021 and the current financial year. The actual impact would be visible largely by the end of this quarter and the upcoming one. Since most of the borrowers were impacted during the COVID-19 and unfortunately the end of their moratorium period is coinciding with the third wave. So, it's still evolving and may not have the same kind of disruptions which we saw in wave one and two," said Head of Commercial Banking, AU Bank, Vivek Tripathi. 

The schemes like ECLGS had played a limited role in the viability of the business. As a bank, we see there could be an evolution of three kinds of borrowers- one which has a viable business model, second is where business is viable but banks need to support them with additional funding and capital and third is unviable businesses, where institution need to take a call through resolution processes," added Tripathi. 

BW Businessworld organised a panel discussion on 'Restructuring MSME and  Emerging Business Loans,' as a part of its 'BW Emerging Conclave and Awards 2022'. The eminent personalities from the industry expressed their thoughts and perspectives during the discussion. The event was moderated by Prasar Sharma, President and Head - Finance, Strategic Partnership and Innovation, BW Businessworld. 


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