Banks/NBFCs required to Follow MSME Restructuring Process before NPA Classification: Supreme Court reverses

The Supreme Court has mandated that banks and Non-Banking Financial Companies (NBFCs) must adhere to the MSME restructuring process before classifying an account as a Non-Performing Asset (NPA). This decision overturns a previous Bombay High Court ruling and underscores the importance of providing MSMEs with the opportunity to restructure their loans and recover financially before being categorized as NPAs. The ruling aims to support the growth and stability of the MSME sector by ensuring that financial institutions follow due processes, thus preventing premature NPA classifications that could adversely affect businesses.