After the Reserve Bank of India (RBI) allowed lenders to recast loans of stressed micro, small and medium enterprises (MSME), former chief executive officer of Axis Bank Shikha Sharma on Friday said central bank's loan restructuring won't work if there's an underlying issue.

Speaking from the sidelines of the Financial Express' Best Banks Awards, Sharma said MSMEs faced a short-term problem during demonetisation.

She said, "There was a short-term problem during demonetisation as at that point some of the small businesses had to re-engineer their models and move away from cash to digital. But that had gone past and most of these businesses had adjusted to the new world and a new model. So we had certainly seen most of the businesses go past the hump and adjust to a new world."

Sharma said the liquidity environment has certainly improved, "We had a lot of liquidity post-demonetisation. At that time, the system was flushed with liquidity and then it dried up. Around September, we had a very tight liquidity situation and I think the RBI tried to ensure that liquidity is coming back in to the system. We still were operating at a deficit environment. So we are not operating in a surplus environment, but the deficit is more manageable number.