RBI Addressing Woes of MSMEs and Small Businesses

Indian economy was unprepared for the second wave of COVID-19. MSME industry, which is a core pillar of the economy, was grappling to rebound but it has fallen anew. The country’s healthcare infra has weakened over a year. In addition, small money borrowers along with MSMEs are tense with the mounting healthcare expenditure. 

Lately, Shaktikanta Das, RBI Governor, announced a Term Liquidity Facility of INR 50,000 crore with tenor of up to three years, at the repo rate, to ease access to credit for providers of emergency health services, according to ET’s report. 

Under the scheme, banks will provide fresh lending support to a wide range of entities, including vaccine manufacturers, importers/suppliers of vaccines and priority medical devices, hospitals/dispensaries, pathology labs, manufacturers and suppliers of oxygen and ventilators, and logistics firms. 

“These loans will continue to be classified under priority sector till repayment or maturity, whichever is earlier,” Das said, adding that banks were expected to create a COVID loan book under the scheme.

RBI Upholds MSMEs, Small Businesses and Individual Borrowers

The central bank proclaimed schemes to give credit relief to MSME as well as individual borrowers that are affected by the epidemic. As per RBI’s official announcement, the  central bank those with aggregate exposure of up to INR 25 crore, who had not availed restructuring under any of the earlier restructuring frameworks (including under last year’s resolution framework), and whose loans were classified as ‘standard’ as on March 31, 2021, were eligible for restructuring under the proposed framework.

“RBI announced re-opening of one-time restructuring for individuals and MSMEs till September 30, while further allowing the lending institutions to extend the period of moratorium up to 2 years, under restructuring 1.0. This move will offer immense relief to financial institutions as well as borrowers, towards effectively managing their working capital. Apart from this, I would like to suggest the authorities to extend the coverage of PSL to inculcate lending to NBFCs, whose assets are primarily MSMEs and small businesses. This will in turn enhance the ability of NBFCs to provide credit to the affected businesses,” Shachindra Nath, Executive Chairman and Managing Director at U GRO Capital, said.

While small businesses and individual borrowers, who have employed restructuring under Resolution Framework 1.0, commercial banks or lenders have been allowed to utilise this window to alter such plans, incrementing moratorium period.

On the flipside, MSMEs and small businesses that were previously restructured, lending institutions have been allowed as a one-time measure. Lending institutions are also asked to examine working capital sanctioned (permitted) limits on the basis of reassessing working capital cycle as well as margins.