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RBI announces slew of measures for MSMEs battered by Covid second wave


In an effort to reduce the stress on small businesses and the MSME sector amid the unprecedented Covid surge gripping the nation, RBI Governor Shaktikanta Das on Wednesday announced a set of measures targeted at offering relief for such cash starved enterprises.

For enhancing credit to MSME entrepreneurs, Das mentioned that in Feb 2021, 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 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,” he stated in his address.

His next set of measures related to resolution of Covid related stressed assets of individuals, small businesses and MSMEs. Stating how this section has been the most vulnerable category of borrowers in this environment, Das added that the resurgence of Covid in recent weeks and the associated containment measures impacted the nascent economic revival that was taking shape.

“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.

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In a statement, Uday Kotak, President, CII said, “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.”

Das stated that in respect of individual borrowers and SMBs who have availed restructuring of their loans under resolution framework 1.0 where resolution plan permitted moratorium of less than two 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 two years.

Talking about RBI’s announcements, Rajesh Sharma, Managing Director, Capri Global Capital Ltd said, “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.”

Das further 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.

HP Singh, Chairman & Managing Director, Satin Creditcare 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.”

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The MSME sector has been under considerable stress in the aftermath of Covid’s second wave which has severely hit their cash flows, survival and thrown them off gear.

Hardika Shah, Founder and CEO, Kinara Capital said, “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.”



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