India CEA urges review of MSME loan classification norms

Chief Economic Adviser V. Anantha Nageswaran has called for a review of non-performing asset (NPA) classification norms for micro, small, and medium enterprises (MSMEs) by the Reserve Bank of India. Speaking at Sa-Dhan's national conference, Nageswaran argued that the current uniform 90-day timeline for declaring NPAs does not account for the diverse cash flow cycles and working capital requirements across different MSME sectors.

He noted that the transition to Special Mention Account (SMA) classification can act as a de facto NPA status, creating significant difficulties for borrowers. Additionally, Nageswaran advised the microfinance sector to invert its current priority pyramid by focusing on savings and insurance before credit. He warned that excessive lending, mis-selling, and the risks associated with AI-driven digital lending could lead to systemic exclusion and recurring financial crises.