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New RBI Governor Shaktikanta Das discusses MSME credit and NPAs with PSU bank heads

posted on 14th December 2018
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The Reserve Bank of India (RBI) Governor Shaktikanta Das met with the heads of State Bank of India, Bank of India, IDBI Bank, Punjab National Bank, Union Bank of India, Central Bank of India and Dena Bank on Thursday to discuss MSME credit, reported The Financial Express. Sources close to the publication indicated that the discussion was focussed on steps that could be taken to lend more to the MSME sector.

The governor also asked for feedback on the effectiveness of the central bank’s February 12 circular, which featured revised asset recognition norms with respect to borrower behaviour and improvement in credit discipline. The bankers are said to have responded saying the new rules relating to the recognition of defaults were working well.

However, there was no specific discussion on the Prompt Corrective Action (PCA) scheme introduced by the RBI in December 2002. Liquidity issues facing non-banking financial companies (NBFC) were discussed briefly. “The references to the resources crunch at NBFCs were few and no detailed discussions were held,” a banker said.

The PCA framework allows the RBI to initiate structured or discretionary actions for banks that hit trigger points in terms of capital-to-risk weighted assets ratio, net non-performing assets and return on assets. The governor, however, did not give directives or suggestions though indicated he would continue to hold similar feedback sessions with stakeholders.

Norms in the February circular suggest that if the principal or interest is overdue for a single day beyond 30 days, the account is identified as a special mention account-0 (SMA-0). With a delay of 30 to 60 days, it slips to the SMA-1 category. If it is overdue for more than 60 days till 90 days, it falls under the SMA-2 category. If payment isn’t made for more than 90 days, the account is to be classified as a non-performing asset (NPA).

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