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The Federation of Indian Micro and Small & Medium Enterprises (Fisme) has proposed extending the Centre’s ₹10,000 crore SME Growth Fund to financially stressed micro, small and medium enterprises (MSMEs), including those whose loan accounts have been classified as Special Mention Account-2 (SMA-2) or non-performing assets (NPAs), provided they have credible revival plans.
The proposal would expand the fund’s intended use beyond helping enterprises scale up to supporting viable businesses seeking to recover from financial stress. Fisme has suggested using the fund to provide capital to such businesses, drawing a parallel with working capital term loans previously extended by banks to sick units.
Chief Economic Adviser V Anantha Nageswaran had also recently called for a review of loan-classification norms for MSMEs, bringing renewed focus on how financial stress is assessed in the sector.
SMA-2 accounts are loans in which principal or interest payments have remained overdue for 61-90 days. Loans are generally classified as NPAs when payments remain overdue for more than 90 days, subject to applicable Reserve Bank of India (RBI) norms.
“The SGF should on priority assist MSMEs that get caught in headwinds leading to SMA-2 or NPA classification. The fund may also extend to any sick MSME unit which offers a credible revival plan. Earlier also, banks used to offer working capital term loans (WCTLs) to sick units. The SGF funds could be leveraged similarly,” said Anil Bhardwaj, secretary general of Fisme.
The Union Cabinet approved a government commitment of ₹10,000 crore on October 6 to establish the SME Growth Fund, aimed at bridging the equity funding gap for small and medium enterprises looking to scale up. Existing support mechanisms largely cater to early-stage businesses and micro enterprises.
The fund is intended to provide equity capital to eligible enterprises, with a focus on manufacturing and businesses operating in industrial clusters in Tier-II and Tier-III cities. The capital is expected to help firms expand capacity, adopt new technologies and improve competitiveness. Fisme wants a portion of the fund to also support financially stressed MSMEs with credible revival plans.
Experts said dedicated funding could help businesses with sound fundamentals recover before their financial stress deepens.
Shrikant Goyal, managing director of Getfive Funds, said a portion of the SME Growth Fund could support businesses with sound fundamentals and a credible recovery path.
“An account entering the SMA category can be an early warning sign, and timely intervention can help viable businesses recover before the stress deepens,” he said.
Goyal said patient capital and appropriate guidance could help such enterprises protect jobs, improve their financial position and return to growth. The key, he said, was to distinguish temporary financial stress from deeper structural weaknesses.
He said a dedicated funding mechanism for potentially viable stressed MSMEs could complement the existing framework, while banks also needed to adopt a more proactive approach towards revival.
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