RBI’s relief measures for MSMEs: 4 key takeaways from Shaktikanta Das speech; experts opine mixed bag

RBI on Wednesday permitted SFBs to categorise contemporary lending to smaller MFIs with asset measurement of as much as Rs 500 crore for on-lending to particular person debtors as precedence sector lending.

Ease of Doing Business for MSMEs: In an try to jumpstart micro, small, and medium enterprises (MSME) within the nation reeling below the second wave of the Covid impression, Reserve Bank of India Governor Shaktikanta Das on Wednesday introduced a number of relief measures. The assist largely centered round easing credit score issues for MSMEs, small companies, and people. “Small businesses and financial entities at the grassroot level are bearing the biggest brunt of the second wave of infections. Against this backdrop and based on our continuing assessment of the macroeconomic situation and financial market conditions, we propose to take further measures,” Das stated in his unscheduled tackle.

In order to incentivise credit score movement to MSMEs, RBI in February this 12 months had allowed scheduled industrial banks to deduct credit score disbursed to new MSME debtors from their web demand and time liabilities (NDTL) for calculation of the money reserve ratio (CRR). Das, on Wednesday, prolonged this exemption, which is presently accessible for exposures as much as Rs 25 lakh and for credit score disbursed as much as the fortnight ending October 1, 2021, until December 31, 2021 “order to further incentivise the inclusion of unbanked MSMEs into the banking system.”

“This is a very good incentive for the banks to promote lending to the MSME sector. Our demand is for the continuation of the restructuring process which ended on March 31 and to also include SME I units to benefit from it. Government should step in to stop the rot caused by this second wave of this pandemic. The future of many MSME units stands in jeopardy. The takeover should be smooth while banks and government procedures should be tweaked accordingly and quickly,” Manguirish Pai Raikar, Chairman, National Council for MSME, Assocham instructed Financial Express Online.

Das additionally allowed people, small companies, and MSMEs with loans as much as Rs 25 crore and who had not availed restructuring below any of the sooner restructuring frameworks together with below the Resolution Framework 1.0 as of August 6, 2020, and who have been categorized as ‘Standard’ as on March 31, 2021, to be eligible “to be considered under Resolution Framework 2.0.” Borrowers can avail one-time restructuring below the proposed framework until September 30, 2021. “As it is for those classified as standard as of March 31, 2021, limited number of small businesses and MSMEs could stand to benefit from this measure,” Kavita Chacko, Senior Economist, CARE Ratings instructed Financial Express Online.

Also learn: Digital transactions for MSME Min, attached offices decline for third straight year; KVIC tops in volume

On the opposite hand, for people and small companies who’ve already availed mortgage restructuring below the 1.0 framework, RBI stated that lending establishments can enhance the moratorium interval or residual tenor as much as a complete of two years. (*4*) Maulik Sanghavi, Partner – Resolution Advisory, BDO India instructed Financial Express Online.

The central financial institution additionally stated that it might conduct particular three-year long-term repo operations (SLTRO) of Rs 10,000 crore at repo fee for small finance banks (SFBs) with the intention to present additional assist to small enterprise models, micro and small industries, and different unorganised sector entities adversely affected in the course of the present wave of the pandemic. The facility could be deployed for contemporary lending of as much as Rs 10 lakh per borrower and could be accessible until October 31, 2021.

“In the current times, when unprecedented Covid is becoming unstoppable and affecting small businesses in the meanest way, such measures can provide some relief to them and help them in reviving and surviving to some extent. However, the extent of lending could have been more reasonable and the period of the facility may require reconsideration for some extended period while seeing the current trend of the peaking of Covid,” Deepak Thakur, Partner, L&L Partners instructed Financial Express Online.

RBI on Wednesday additionally permitted SFBs to categorise contemporary lending to smaller MFIs with asset measurement of as much as Rs 500 crore for on-lending to particular person debtors as precedence sector lending. “At present, lending by SFBs to MFIs for on-lending is not reckoned for priority sector lending (PSL) classification,” stated Das. The relief could be accessible as much as March 31, 2022.

“Today’s announcement is very disappointing. The alternative to moratorium through loan restructuring for accounts which are ‘standard’ as of March 31 only will deprive many self-employed and MSEs to avail this benefit. Plenty of enterprises engaged in tourism, automobile, restaurants, etc., have been left out. Priority sector category and a higher allocation of additional loans alone can’t be a solution at this moment. What is required is the comfort of reduction in the cost of finance,” Ok.E. Raghunathan, Convenor, Consortium of Indian Associations instructed Financial Express Online.

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