09 October,2026 04:25 PM IST | New Delhi | mid-day online correspondent
Chief Economic Advisor V Anantha Nageswaran. File pic
Chief Economic Advisor V Anantha Nageswaran on Friday called for a review of the non-performing asset (NPA) classification norms for micro, small and medium enterprises (MSMEs) by the Reserve Bank of India (RBI), saying the rules should follow the cash flow patterns, according to news agency PTI.
He pointed out that MSMEs across sectors have different working capital requirements and cash flow cycles, and added that the Finance Ministry has been advocating a review of the norms.
Under the existing framework, loan accounts are classified as Special Mention Accounts (SMA) based on the period of overdue payments, with categories corresponding to 30 days, 60 days and 90 days, according to PTI. An account is generally classified as a non-performing asset if interest or principal remains overdue for more than 90 days.
Nageswaran said the transition to SMA classification itself can have significant consequences for borrowers, with businesses potentially facing difficulties even before their accounts are formally classified as NPAs.
"The moment you are classified as SMA, then you almost end up becoming already de facto, if not de jure," he said.
He said the financial regulator's rules should reflect domestic business practices and cash flow patterns rather than adopting a globally uniform framework.
"We need to evolve such norms consistent with our practices and cash flow patterns, rather than adopting a globally uniform pattern. These would be some of the things we need to do (for the MSME sector which is a big employment generator)," he said.
Nageswaran further said ease of doing business impacts MSMEs more than large businesses, and smaller businesses face a disproportionately high compliance burden, in terms of both financial expenses and time.
Easing this burden would allow smaller businesses to focus their limited resources and time on core operations and expanding their workforce, thereby creating jobs and delivering tangible benefits at the grassroots level, he said.
He said the MSME growth should focus on deregulation, skill development, greater utilisation of trade agreements and adopting diverse development models suited to the specific needs and circumstances of different states.
He added that government under the leadership of the Cabinet Secretary, has also been pursuing deregulation at the grassroots level for MSMEs over the past nearly two years.
Nageswaran said India needs to take advantage of the various Free Trade Agreement (FTA) and other trade agreements.
"We have to leverage the trade agreements we are signing...there is good news that the UK agreement and the European Union agreement, which is going to become operational in two months, both give enormous scope for goods and services of India to reach their markets. And we have to go all out to ensure that we take advantage of it," he said.
The Chief Economic Advisor said microfinance institutions must avoid over-lending, especially amid the proliferation of artificial intelligence (AI) technology and digital selling.
"I think from a pure finance perspective, the priority should be savings, insurance and then credit, but the sector usually has reversed the order, and that is not the right sequence. And then there have been frequent bouts of over-lending and mis-selling, and this should be avoided," he said.
On AI, he said, "AI may actually end up making us realise that our skill and our strength are in labour-intensive growth, given the labour endowment of this country and the demographic sweet spot we are in."
(With inputs from PTI)
