According to a Business Standard report, the government is considering extending the non-performing assets (NPA) classification period for loans to micro, small, and medium enterprises (MSMEs) from 90 days to 180 days in the Union Budget for FY25.
Importance of MSMEs in India’s Economy
MSMEs play a crucial role in India’s economy by contributing around 29 percent to the gross value added (GVA) and approximately 45 percent to the country’s exports. Despite their significant economic impact, these enterprises often face challenges in receiving timely payments, leading to defaults on loan repayments.
Government’s Initiatives to Support MSMEs
To mitigate these challenges, the government has mandated a 45-day payment cycle for goods and services procured from SMEs, effective from April 2024. However, adjustments to this timeline may be considered following feedback from stakeholders.
Potential Relaxations in SMA Classification
There are discussions within the government about relaxing the Special Mention Accounts (SMA) classification norms for MSMEs. SMA classifications help banks identify loans under stress. Proposed changes include extending SMA-0 from 30 days to 60 days, SMA-1 from 60 days to 90 days, and SMA-2 from 90 days to 120 days.
Credit Distribution and Challenges Faced by MSMEs
RBI data for FY24 shows that MSMEs received 28 percent of the total bank credit allocated to the industry segment, with the remaining 72 percent going to large enterprises. In 2023, the Ministry of MSMEs estimated a credit gap of Rs 20 trillion to Rs 25 trillion in the sector, highlighting significant financial challenges faced by MSMEs.
Multiple Choice Questions (MCQs) with Answers:
- What is the proposed extension in NPA classification period for MSME loans according to the Business Standard report?
- A) From 60 days to 90 days
- B) From 90 days to 180 days
- C) From 30 days to 60 days
- D) From 180 days to 360 days
- Answer: B) From 90 days to 180 days
- What percentage do MSMEs contribute to India’s exports?
- A) Approximately 10 percent
- B) Approximately 45 percent
- C) Approximately 75 percent
- D) Approximately 30 percent
- Answer: B) Approximately 45 percent
- When will the mandated 45-day payment cycle for goods and services from SMEs come into effect?
- A) April 2023
- B) April 2024
- C) January 2025
- D) October 2024
- Answer: B) April 2024
- According to RBI data, what percentage of total bank credit to the industry segment was allocated to MSMEs in FY24?
- A) 50 percent
- B) 28 percent
- C) 72 percent
- D) 15 percent
- Answer: B) 28 percent
- What is the estimated credit gap in the MSME sector as per the Ministry of MSMEs in 2023?
- A) Rs 5 trillion to Rs 10 trillion
- B) Rs 15 trillion to Rs 20 trillion
- C) Rs 20 trillion to Rs 25 trillion
- D) Rs 30 trillion to Rs 35 trillion
- Answer: C) Rs 20 trillion to Rs 25 trillion