Chief Economic Advisor Urges RBI to Review MSME Loan Norms
V. Anantha Nageswaran called on the Reserve Bank of India to align NPA classification norms with the specific cash flow patterns of small businesses.
Chief Economic Advisor V. Anantha Nageswaran urged the Reserve Bank of India to review non-performing asset (NPA) classification norms for micro, small, and medium enterprises (MSMEs). Speaking at the 21st National Conference of Inclusive Growth in New Delhi, Nageswaran argued that the current uniform 90-day timeline for NPA classification fails to account for the diverse working capital requirements and cash flow cycles of different MSME sectors.
Nageswaran noted that the transition to Special Mention Account (SMA) status often creates de facto NPA conditions, effectively blocking further credit for borrowers before formal classification occurs. He advocated for norms consistent with domestic practices rather than adopting a globally uniform pattern. To support these businesses, he demanded stronger payment discipline to prevent buyers from delaying payments and stated that government ministries and public sector entities should set an example for the private sector in ensuring timely payments.
Beyond loan regulations, Nageswaran called for grassroots deregulation to reduce compliance burdens on smaller businesses. He cautioned microfinance institutions against over-lending and overleveraging their balance sheets, arguing that the sector has incorrectly prioritized credit over savings and insurance. He also highlighted the potential for labor-intensive growth in the face of AI advancements and the importance of leveraging upcoming trade agreements with the United Kingdom and the European Union.
