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The Finance Industry Development Council (FIDC) has urged the Reserve Bank of India (RBI) to extend the one-time restructuring scheme for loans to MSMEs till March next year due to the severe second wave of Covid-19.

The RBI had, on February 11, 2020, allowed one-time restructuring of existing MSME advances, classified as "standard", without downgrade in the asset classification subject to certain additional provisioning and compliance with the conditions as prescribed in the said notification. The time limit for implementation of the said restructuring was till December 31, 2020.

In a letter to RBI Governor Shaktikanta Das, FIDC Director General Mahesh Thakkar said that owing to the severe second wave of Covid-19, the MSMEs, as also the retail and wholesale trader industry, have not been able to revive their economic activities and therefore, are in urgent need of support from the lenders.

He noted that various surveys and reports are forewarning that the operating environment for banks will most likely remain challenging, as the second wave could dent the sluggish recovery in consumer and corporate confidence, and further, suppress banks' prospects for new business.

"Considering the challenging environment for MSMEs and lenders, it will be helpful, if the RBI extends the said notification till at least March 31, 2022," the letter said.

The NBFC body also requested that the benefit of PSL (priority sector lending) classification for lending by banks to NBFCs for on-lending be regularised as part of the overall PSL policy.

The RBI on April 7, 2021, extended PSL classification for lending by banks to NBFCs for on-lending by six months, till September 30, 2021, which is a welcome step, it noted.

The FIDC further said that NBFCs are important drivers of credit to MSME sector and therefore, improve the outreach of formal banking to the MSMEs, thereby significantly contributing to the goal of financial inclusion and aiding MSMEs to recommence their economic activities.

The RBI has been continuing to extend, on ad-hoc basis, the time-period for on-lending benefit by six months at the time of each review.

"We request that benefit of PSL classification for lending by Banks to NBFCs for on-lending may please be regularised as part of the overall PSL policy. This will enable the banks and NBFCs to cater to the needs to MSME sector in a more organised manner," it said.

Further, under the on-lending model, only fresh loans granted by NBFCs are allowed PSL benefit. The existing unencumbered pools of eligible PSLs do not qualify for such classification benefit.

"We hereby request the RBI to allow refinance, apart from by way of buy-out but also qualifying for hypothecation for DP for bank finance against existing unencumbered MSME pool originated by NBFCs," the letter said.

A copy of the letter has also been sent to Union Micro, Small & Medium Enterprises Minister Nitin Gadkari.