IEMA flags RBI’s revised NPA norms, seeks MSME exemption

CHENNAI: The Industrial Estate Manufacturers Association (IEMA) in Guindy has raised concerns over the Reserve Bank of India’s revised bad loan classification norms, warning that the changes could adversely impact micro, small and medium enterprises (MSMEs) and restrict their access to credit.

In a representation to Union Finance Minister Nirmala Sitharaman, the association has sought exemption for MSMEs from key provisions of the new framework, which is set to come into effect from April 1, 2027.

The RBI’s updated Master Directions, released on April 27, aim to align India’s bad loan recognition and provisioning practices with globally accepted standards. A key change in the revised framework is the treatment of borrowers with multiple loans. Under the new norms, if one loan of a borrower is classified as a non-performing asset (NPA), all other loans linked to the borrower may also be tagged as NPAs, even as the 90-day overdue rule for identifying an NPA remains unchanged.

Further, a borrower will be reclassified as a “standard asset” only after clearing all overdue interest and principal across all credit facilities. Banks have also been directed to move to automated systems for identifying NPAs, replacing manual tagging.

In its letter, IEMA said applying globally benchmarked norms uniformly would be “unfair” to Indian MSMEs given their distinct operating conditions and dependence on multiple credit lines.

The association cautioned that linking all loans to a single NPA could trigger a cascading effect, restricting credit flow and threatening the survival of small businesses. It also pointed to continuing challenges faced by MSMEs, including post-pandemic recovery and external economic pressures.

Seeking intervention, IEMA urged the Finance Ministry to review the RBI’s directions and ensure MSMEs are exempted from the new classification rules.