RBI grants Relief to MSME Borrowers registered under GST [Read Notification]

In a major relief to Micro, Small and Medium Enterprises (MSME) registered under Goods and Services Tax (GST) regime, the Reserve Bank of India (RBI) has notified that the exposure of banks and NBFCs to a borrower classified as micro, small and medium enterprise shall continue to be classified as a standard asset in the books of banks and NBFCs.

However, the Notification issued by the RBI said that the relief is available to such Micro, Small and Medium Enterprises subject to the following conditions;

• The borrower is registered under the GST regime as on January 31, 2018.
• The aggregate exposure, including non-fund based facilities, of banks and NBFCs, to the borrower, does not exceed 250 million as on January 31, 2018.
• The borrower’s account was standard as on August 31, 2017.
• The amount from the borrower overdue as on September 1, 2017, and payments from the borrower due between September 1, 2017, and January 31, 2018, are paid not later than 180 days from their respective original due dates.
• A provision of 5% shall be made by the banks/NBFCs against the exposures not classified as NPA in terms of this circular. The provision in respect of the account may be reversed as and when no amount is overdue beyond the 90/1201 day norm, as the case may be.
• The additional time is being provided for the purpose of asset classification only and not for income recognition, i.e., if the interest from the borrower is overdue for more than 90/1202 days, the same shall not be recognized on accrual basis.

Presently, banks and NBFCs in India generally classify a loan account as Non-Performing Asset (NPA) based on 90 day and 120-day delinquency norms, respectively. It has been represented to the Bank that formalization 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.