Bad loans worth Rs 15,000 crore will be wiped off the banking system with their reversal into standard accounts in the June quarter following new norms for differential treatment of defaults by small and mid sized businesses.
Financial Services Secretary Rajiv Kumar told PTI that "180 day NPA norm for MSMEs will help reverse Rs 15,000 crore in the banking system as they have become standard asset.
"This will help banks to make positive entry to the tune of Rs 2,200 crore making balance sheet of public sector banks (PSBs) healthier in the first quarter (Q1) of the current fiscal," Kumar said.
It will aid growth in the Micro, Small and Medium Enterprises (MSME) sector which is witnessing credit growth of over 20 per cent in the last 5 quarters, he said.
"MUDRA and initiatives in MSME space leads to rise in the new credit borrowers, giving wings to entrepreneurial ambitions," he said.
At the same time, he added, banks would have additional funds to focus on MSME growth, which is engine of the economy.
As per the Reserve Bank of India's NPA classification norms, banks have to make provision of 15 per cent against the defaulting account of MSME. Providing relief to MSMEs, RBI earlier this month eased NPA classification norms for such units facing input credit linkages and associated issues under the Goods and Services Tax.