Lok Sabha Question No. 1819 (UNSTARRED), answered on 2025-03-10
Subject: Increase in NPA in MSME Sector
Ministry: FINANCE
Asked by: Shri Sudhakar Singh

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO. 1819

ANSWERED ON MONDAY, 10 th  MARCH, 2025/ PHALGUNA 19, 1946 (Saka)

## INCREASE IN NPA IN MSME SECTOR

## 1819. SHRI SUDHAKAR SINGH:

Will the Minister of FINANCE be pleased to state:

- (a) whether the Government has taken cognizance of the rising Non-Performing Assets (NPA) ratio in loans accrued to the Micro, Small, and Medium Enterprises (MSMEs) sector;
- (b) if so, the details of the current NPA levels in MSME loans and the way by which these have changed during the last five years;
- (c) the specific measures taken/being taken by the Government to reduce the NPA ratio in the MSME sector and ensure financial stability for small businesses;
- (d) the data on NPAs of MSME sector and the steps taken at the regional level to address this issue, State/UT-wise; and
- (e)  the  measures  taken/to  be  taken  by  the  Government  to  strengthen  credit  discipline, enhance financial inclusion and support MSMEs in improving loan repayment capacities?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI PANKAJ CHAUDHARY)

(a) & (b): Data on total advances outstanding-funded, gross NPAs and Gross NPA ratio, of Scheduled Commercial Banks (SCBs) in MSME sector is provided below.

## (Amount in ₹ Crore)

| Period, as on   | Total MSME Advances Outstanding- (Funded)   | Gross NPAs   | Gross NPA (%)   |
|-----------------|---------------------------------------------|--------------|-----------------|
| 31-03-2020      | 16,97,836                                   | 1,87,255     | 11%             |
| 31-03-2021      | 18,45,188                                   | 1,60,464     | 9%              |
| 31-03-2022      | 20,44,788                                   | 1,54,991     | 7%              |
| 31-03-2023      | 23,92,319                                   | 1,30,869     | 5%              |
| 31-03-2024      | 28,04,511                                   | 1,25,217     | 4%              |

Source: RBI

It is observed from the above data that even though the total advances outstanding to MSME sector has consistently increased over the last five years, gross NPAs and gross NPA ratio of MSME  Sector  have  continuously  decreased  during  the  same  period.  Further,  as  per  the provisional data of FY 2025 i.e. till 31.12.2024, furnished by RBI, both Gross NPAs and Gross NPA ratio of MSME Sector decline.

- (c): Several measures have been taken over the past few years for resolution of stressed/NPA accounts which include the inter alia, the following:
- i. A  comprehensive  regulatory  framework  governing  compromise  settlements  and technical write-offs covering all regulated entities is issued.
- ii. RBI inter alia provides for a comprehensive framework for transfer of stressed assets to  eligible  transferees  viz.  commercial  banks,  Non-Banking  Financial  Companies (NBFCs), All India Financial Institutions (AIFIs) and Asset Reconstruction Companies (ARCs). Further, to provide a level playing field, ARCs have been permitted to acquire loans where frauds have been detected.
- iii. Ministry of MSME vide its Gazette Notification (S O No. 1432(E)) dated 29.5.2015 notified a 'Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises' to provide a mechanism to address the stress in the accounts of MSMEs.
- iv. Banks have been advised to Formulate and implement Loan Policy and Loan Recovery Policy with the approval of the Board of Directors, Establish Recovery Cells at Head

Office, fixing of recovery targets for various levels and close monitoring of recovery performance, Strengthen the information sharing mechanism among lenders etc.

As regards financial stability, in terms of the mandate given by the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934, the regulatory and supervisory framework of the  Reserve  Bank  is  guided  towards  the  overarching  principles  of  safeguarding  customers interest and preservation of financial stability, among others. The regulatory and supervisory frameworks  for  the  regulated  entities  (REs)  have  been  designed  on  the  principle  of proportionality  consistent  with  their  risk  profiles.  RBI  has  taken  measures  to  strengthen supervisory approach and make it more forward looking, risk-oriented and analytical, which is aimed at identifying vulnerable sectors, borrowers and resolution of stress.

(d): Data is not centrally maintained.

(e): Comprehensive measures have been taken by the Government to reduce NPAs, including that pertaining to MSMEs, which include, inter alia, the following:

- i. A pre-packaged insolvency resolution process (PPIRP) was operationalised under IBC to provide an efficient alternative insolvency resolution process for corporate persons classified as MSME, ensuring quicker, cost- effective and value maximising outcomes for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses and also preserving employment.
- ii. Prudential Framework for Resolution of Stressed Assets was issued by RBI in 2019 to provide  a  framework  for  early  recognition,  reporting  and  time  bound  resolution  of stressed assets, with a build-in incentive to lenders for early adoption of a resolution plan.
- iii. Various  measures  viz.  extension  of  moratorium  of  MSME  loans,  recalculation  of Drawing Power (DP) by reducing margin and/or by reassessing the working capital cycles, resolution frameworks 1.0 & 2.0 etc. were taken as part of COVID-19 regulatory package.
- iv. In the Union Budget (2024-25), a new mechanism has been announced for facilitating continuation of bank credit to MSMEs during their stress period.

*****