Business · India Bureau
CEA pushes for flexible norms on MSME loan defaults
India's Chief Economic Adviser has called for relaxing uniform rules on classifying small business loans as stressed accounts, arguing that different sectors face varying payment cycles.
LSN India ·
Chief Economic Adviser V Anantha Nageswaran has advocated for more flexible norms governing special mention accounts for micro, small and medium enterprises, contending that a standardized 90-day overdue timeline fails to account for sector-specific variations.
The recommendation addresses a longstanding challenge in India's banking system where uniform classification criteria may not reflect the operational realities of diverse MSME segments. Businesses across agriculture, manufacturing, retail and services sectors operate with distinctly different cash flow patterns, making rigid timelines potentially counterproductive for lenders and borrowers alike.
Nageswaran's position suggests that financial regulators should consider implementing differentiated frameworks that align loan stress classification with actual business cycles. Such flexibility could enable banks to better distinguish between temporary payment delays and genuine financial distress, particularly for seasonal businesses or those with extended transaction cycles.
The push for reformed norms comes as policymakers seek to balance financial system stability with support for India's vast MSME sector, which employs millions and contributes significantly to economic output. Industry observers note that tailored approaches to loan classification could improve credit accessibility while maintaining prudential oversight of banking operations.