New Delhi, October 9 (IANS). Chief Economic Advisor (CEA) V. Ananth Nageswaran on Friday said the Reserve Bank of India (RBI) should review the non-performing asset (NPA) classification norms for micro, small and medium enterprises (MSMEs) to bring them in line with the business practices and cash flow patterns of these enterprises.
He said that businesses operating in different sectors have different cash flow cycles. In such a situation, a uniform timeline of 90 days for declaring NPA is not suitable for all MSMEs.
Nageswaran said that even after falling into the SMA category, borrowers may have to face serious consequences. Many businesses may face difficulties even before their accounts are formally declared NPA.
“The moment you are classified as an SMA, you are almost de facto, if not legally, already an NPA. I think that needs to change,” Nageswaran said at the national conference of 'Sa-Dhan'.
“We need to develop such norms in line with business practices and cash flow patterns rather than adopting a uniform norm,” he said.
Banks classify loan accounts as SMA based on the period of delay in payment. Accounts with an outstanding period of up to 30 days are classified as SMA-0, accounts with an outstanding period of 31 to 60 days as SMA-1 and accounts with an outstanding period of 61 to 90 days as SMA-2. The loan account is declared a non-performing asset (NPA) if payments remain outstanding for more than 90 days.
Nageswaran said MSMEs in India operate in different sectors and the working capital cycle of each sector is different. Therefore, a uniform norm of 90 days is not suitable for all MSMEs.
However, the Chief Economic Advisor also stressed that the microfinance sector should avoid taking excessive loans and rely more on internal savings to finance its business.
–IANS
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