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witnesses a rise in NPAs. Towards this end, several measures
have been taken by both Government and RBI over the
years to step up the credit flow to the enterprises on one
hand and reduce the level of NPAs on the other. Such
measure need a review.

Measures taken by Government and

RBI:
(A) To promote Credit Flow to MSMEs:
To enable more and more enterprises to come under
the MSME category and avail of adequate institutional
finance & receive more concessions, the Government
has taken few steps. To elaborate, the Government
changed the definition of MSME in February 2018 in to match lenders with borrowers to provide unsecured
classifying the enterprises from 'investment in plant and loans and mostly for receivables financing. Further, the
machinery/equipment' to 'annual turnover'. RBI has advised the banks to keep a provision for
Accordingly, a micro enterprise is defined as a unit additional credit limits (Standby Credit Facility) for term
where the annual turnover does not exceed Rs.5 crore, loans and focus on lending to un-served and under-
a small enterprise will be the one where the annual served sections including micro and small industries.
turnover is more than Rs.5 crore but does not exceed Similarly, an additional provision within the overall
Rs.75 crore.
working capital limits should be made in order to
A medium enterprise will now be a unit where the provide timely financial support to MSEs facing financial
annual turnover is more than Rs.75 crore but does not difficulties during their lifecycle.
exceed Rs.250 crore . For MSMEs hit by the Banks have also been asked to carry out a mid-term
implementation of Goods and Services Tax (GST) which review of regular working capital limits and fix up
adversely impacted cash flows of the smaller entities timelines for credit decisions. Banks have been told to
during the transition phase with consequent difficulties coordinate with NBFCs /MFIs to ensure for convergence
in meeting their repayment obligations to banks,
of efforts between banks on one hand and the NBFCs/
additional time is granted to clear their dues to banks
Micro Finance Institutions (MFIs) on the other. Because,
and Non Banking Financial Companies(NBFCs). Till then, NBFCs/MFIs have 'feet on the ground' in such locations
they remain 'standard asset' in the books of banks and and better understanding of the local conditions &
NBFCs subject to fulfilment of certain conditions..Besides business viability, credit worthiness of individuals, their
the Government, RBI has undertaken several initiatives. repayment capabilities etc. Regarding other RBI
To mention a few of them, RBI granted an approval to measures, it has been decided by the central bank to
10 Small Finance Banks (SFBs) to be set up that would remove the currently applicable loan limits of Rs.5 crore
primarily focus on lending to un-served and under- and Rs. 10 crore per borrower to Micro& Small and
served sections including micro and small industries. Medium Enterprises engaged in Services sector
Through Banking Correspondent (BC) mechanism, this respectively. Further, a sub-target for loans to Micro
would be possible to give considerable fillip in meeting and Small enterprises has also been under the priority
the banking needs of the micro enterprises particularly sector.
in rural areas. In order to solve the problem of delayed (B) To reduce the level of NPAs:
payment to MSMEs, the RBI has licensed three entities
for operating the Trade Receivables Discounting System Efforts are put in by the Government to make MSMEs
(TReDS). more financially viable so they do not slip into NPA
category. In the recent Union Budget 2017-18, tax
It also proposes to finalize a set of guidelines to regulate incentives are provided to MSMEs by reducing Income
peer to peer (P2P) lending to create an online platform Tax rate from 30% to 25%. Consequently, almost 96%

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