India urges lenders to restructure SME loans

The move comes at a time when several MSME units are struggling to service loans.

Indian banks are heading for yet another round of loan restructuring. The beneficiaries this time are small- and medium-sized firms hit by the steep rise in interest rates and a slowing economy.

The government, which owns majority stakes in public banks, has asked the lenders to consider recasting the debt of micro, small and medium enterprises (MSMEs) chairmen and senior executives of at least four state-run banks said, citing a finance ministry directive last week. The banks have been asked to conduct closer monitoring of such accounts that are facing stress.

Analysts say another round of restructuring will exert further pressure on the profitability of banks, already facing rising bad loans or non-performing assets (NPAs), primarily from restructured loans.

“This will have an impact on banks, which are already suffering from interest rate rise and slower growth in economic activities. NPAs are a bigger concern,” said Santosh Singh, analyst with Espirito Santo Securities. “I think this makes bank (stocks) less attractive to investors.”

The development comes in the wake of many MSME units struggling to service loans as cash flows have dried up, bankers said. Many of these companies are on the verge of defaulting on advances.

“These companies are suffering from the current liquidity situation and the rise in interest rates and are largely unorganized,” said Bhaskar Sen, chairman and managing director of Kolkata-based United Bank of India. “Also, they generally do not get facilities such as corporate debt restructuring (CDR) like larger firms. They (government) want us to give some support to them, wherever it is necessary.”

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