Business Registrations MSME Registration

Relief to MSME Borrower


The article is concerned with the relief provided to MSME borrowers as their cash flows are severally affected due to which they are unable to finance loan from banks.

What are the Relieves provided to MSME Borrowers?

Tax reforms in the country are most crucial part of the country because ultimately it impacts the collection of revenue to government which indirectly hit the pattern of expenditure of government as well. The Indirect tax reform of country started in 1st July 2017 introducing Goods and Service Tax (GST) on a slogan of One Nation and One Tax replacing old multi-structure indirect tax regime do have pros and cons for the existing scenario. Government is claiming it has the best return and no hurdles at all to the taxpayer. Assuming the same, country moves to a new regime of Indirect Tax. With the introduction of GST, several sectors of the economy are hit and one of them is financial sector too.

Introduction of GST does not only challenge the tax management, however, the overall business decision is also impacted. Cash flow of so many industries is impacted due to the provision of GST. Stock Transfer is also taxable and input is claimable but this hit the management of working capital of the business. In earlier regime, the stock is moved from one place to another place without any tax portion merely on a various form issued by commercial tax department of respective states. Now after GST movement of goods is based on payment of tax, which requires additional working capital for Industry. As we know the financial management of the business is a huge and very complex task for every professional and businessman too. Therefore even small traders moving their stock one place to another place need to pay tax first and the same will be claimed as input while discharging the actual tax liability.

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Here the actual problem arises to that micro, small and medium enterprise who are engaged in production and manufacturing of commodity or providing service, their cash flow has severally effected which ultimate fail them to discharge their finance/loan arranged from Bank and NBFCs.

Failing to pay their loan liability on time, will classify them to Non-Performing Assets as per the Banks/NBFCs Prudential Norms. It impacts the strength and their ability to take a loan in a future call. Hence the issue is amove to concern authority to revised the existing structure and get the appropriate solution of it.

Therefore the Reserve Bank of India come up with revised prudential norms to Bank/NBFCs to address this issue and to provide relief to MSME Borrowers with some terms and condition laid down in Notification No. RBI/2017-18/129 DBR. No. BP. BC. 100/21.04.048/2017-18 dated 7th February 2018.

Under this notification, RBI has set criteria to classify the loan as Non-Performing Assets (NPA). Presently Bank and NBFCs in India generally classify loan account as NPA based on 90 day and 120-day delinquency norms, respectively.

Subject to fulfillment of following condition and criteria irrespective of delays days of 90/120 norms being Micro, Small and Medium Enterprise shall continue to be classified as a standard asset in books of Banks and NBFCs:-

  1. The borrower is required to under the GST regime as on 31st January 2018
  2. Maximum total exposure, including non-fund based facilities, of Banks and NBFCs to the borrower Rs. 250 Million as on 31st January 2018
  3. Borrower account was standard as on 31st August 2017
  4. Overdue amount from the borrower as on 1st September 2017 and payments due between 1st September 2017 and 31st January 2018 are paid within 180 days from their respective original due dates.
  5. Provision of 5% shall be made by Banks/NBFCs against the exposure not classified as NPA in terms of this circular. The provision in respect of account may be reversed as and when no amount is overdue beyond the 90/120 day norm, as the case may be.
  6. 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 90/120 days, the same shall not be recognized on an accrual basis.
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Now let’s understand the entity covered under MSME Act, 2006. The entity will be termed as Micro, Small and Medium if following criteria set in Act fulfills:-

As per provision of MSMED Act, 2006 the enterprise means an Industrial undertaking or business concern or any other establishment, by whatever name called, engaged in manufacture or production of goods, or engaged in providing or rendering of any service or services.

Enterprises are either engaged in Manufacturing or Service, the further classification is based on the ceiling of Investment (plant & machinery) in enterprises.

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Entity meeting this criterion either in production/manufacturing or rendering service, registered under Goods and Service Tax Act, 2017 has relief as per the above-stated notification being the borrower of any Banks or NBFCs do not classify as NPA.

It is another benefit for those people who are engaged in business and get registered itself under MSME Act, 2006. The act promotes the middle-level investment and business prospects of the country without any hassle in ease of doing business. Business having set criteria of MSME Act, 2006 first need to register under MSME Act, 2006 and then the business again required to register under Good and Service Act, 2017.

Then the applicability of above-stated notification came to picture to elaborate the further terms and condition with benefit aligns therewith in doing business to that business entity.

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