A set of measures by RBI for MSMEs downed with Covid new Surge

A set of measures by RBI for MSMEs downed with Covid new Surge

Aiming at reducing the harm of second wave of Covid on MSMEs, today the Reserve Bank of India (RBI) announces a set of measures for MSMEs, in order to support these small businesses being downed with this anxious and distressing situation.

As Shaktikanta Das the RBI Governor stated, the scheduled commercial banks were allowed to deduct credit disbursed for new MSME borrowers from their Net Demand and Time Liabilities (NDTL) for calculation of CRR in Feb 2021, in order to increase the credit to MSME entrepreneurs. He expressed that “In order to further incentivise inclusion of unbanked MSMEs into the banking system, this exemption which is currently available for exposures of up to Rs 25 lakh and for credit disbursed up to fortnight ending Oct 1 2021 is being extended till Dec 31, 2021.”

The next set of measures announced by Das was regarding resolution of Covid-related stressed assets of individuals, small businesses and MSMEs. He added that the recursion of Covid surge in recent months and the confronting practices related to it, impacts the economic revival that was gradually retaking shape, while he was expressing how MSME sector has been the most vulnerable category of borrowers in this environment.

“Borrowers - individuals and SMBs and MSMEs having aggregate exposure of up to Rs 25 crore and which have not availed restructuring under any of the earlier restructuring frameworks including resolution framework 1.0 shall be eligible for resolution 2.0,” he stated.

The restructuring under the proposed framework may be invoked up to September 30 and shall have to be implemented within 90 days after invocation.

In this regard the President of CII Uday Kotak said in a statement that "The RBI Governor has taken the financial sector battle against COVID 2.0 head on with a clear focus on protecting lives and livelihoods. CII welcomes the support to individual and MSME borrowers and ease of banking through digital means."

Moreover, Das said “in respect of individual borrowers and SMEs who have availed restructuring of their loans under resolution framework 1.0, where resolution plan permitted moratorium of less than 2 years, lending institutions have been permitted to use this window to modify such plans to the extent of increasing the period of moratorium and/or extending residual tenure up to total of 2 years.”

He also added that lending institutions are being permitted as a one-time measure to review the working capital sanction limits of SMEs and MSMEs restructured earlier.

 “The announcement by the central bank shows an effort to strengthen the Indian economy. Opening a one-time restructuring window for individuals and MSME till September 2021 will give an impetus to scale up their business without worrying about financial destitution. Also, the extension window for the earlier availed borrower would ease liquidity challenges and facilitate meeting the objective of inclusive growth,” said Rajesh Sharma, Managing Director, Capri Global Capital Ltd., while speaking about RBI's announcements.

About this measures, HP Singh, Chairman & Managing Director, Satin Credit-care Network Limited believes that “RBI has recognized the hardships being faced by small businesses, MSME borrowers due to the pandemic induced lockdown by providing an extension in the moratorium. The announcement of the targeted long term repo operation for small finance banks of up to Rs 10,000 crore and lending to smaller microfinance institutions of asset size up to Rs 500 crore under priority sector is encouraging."

"The one-time restructuring and extension of moratorium is a relief to an already stressed sector. MSMEs had just about recovered from the ramifications of last year's pandemic and 2021 had begun on a more positive note for small businesses who were looking to scale up this year. However, the unexpected Covid surge and lockdowns is pushing the MSME sector to its limits. The new allowances will save many small businesses," said Hardika Shah, Founder and CEO, Kinara Capital.

As the consequences of this surge of Covid have severely struck MSMEs’ cash flows and impacted their survival, the sector has undergone the considerable stress during this time.  


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