New Delhi: India must look again at how banks label loans for micro, small and medium enterprises (MSMEs). Chief Economic Advisor V. Anantha Nageswaran spoke on Friday. He said that lending rules need to consider how smaller businesses handle cash flow and working capital.
At Sa‑Dhan’s 21st National Conference on Inclusive Growth Nageswaran said that payment cycles vary across businesses and sectors. Today banks call loan accounts Special Mention Accounts (SMA) depending on how many days they are overdue: up to 30 days is SMA‑0 more than 30 days up to 60 days is SMA‑1, more than 60 days up to 90 days is SMA‑2.
If a loan is overdue for more than 90 days it usually becomes a non‑performing asset (NPA). He warned that being an SMA can cause problems for borrowers. He added that a one‑size‑fits‑all global rule may not fit firms. The Finance Ministry has also urged a review.
Nageswaran said that easing compliance rules would allow small businesses to use more time and money for running operations and hiring. He named deregulation, worker training, smart use of trade agreements and state‑specific development plans as priorities for MSME growth.
He also pointed out the chances that the UK and European Union trade agreements give and urged businesses to use them more to reach foreign markets.
He warned microfinance lenders to avoid over-lending and mis-selling and said that savings and insurance should come before credit. With intelligence changing how work is done he stressed how important it is to upgrade workers’ skills. He added that AI could boost India’s potential for labour-intensive growth.
