The outbreak of the COVID-19 pandemic and subsequent restrictions brought uncertainties for everyone from individuals to businesses. Even as the country was on the path of economic recovery after the first wave of the COVID, the nascent revival was again hit by a massive second wave, affecting the individual borrowers, small businesses and Micro, Small and Medium Enterprises (MSME) the most.
In order to support them, the Reserve Bank of India has announced several measures in the last few months.
Special liquidity facility of Rs 16,000 crore
In its latest measure to support the funding requirements of the MSMEs, particularly the smaller ones and those in credit-deficient districts, the RBI on June 4 decided to extend a special liquidity facility of Rs 16,000 crore to Small Industries Development Bank of India (SIDBI) for on-lending/refinancing through novel models and structures.
This facility will be available at the prevailing policy repo rate for a period of up to one year, which may be extended on the basis of its usage. This was decided during a RBI Monetary Policy Committee (MPC) meeting from June 2-4.
Resolution Framework 2.0
On May 5, the RBI announced another set of measures under Resolution Framework 2.0.
(a) Individual borrowers, small businesses and MSMEs having aggregate exposure of up to Rs 25 crore and classified as ‘Standard’ as of March 31, 2021, are eligible for the latest framework. They, however, shouldn’t have availed restructuring under any of the earlier frameworks (including the August 2020 resolution). Restructuring under the latest framework needs to be invoked up to September 30 and shall have to be implemented within 90 days after invocation.
(b) In respect of small businesses and MSMEs restructured earlier, the RBI permitted lending institutions to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, and so on, as a one-time measure.
Credit to MSMEs
Earlier in February, Scheduled Commercial Banks were allowed to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio. To further incentivise the inclusion of the MSMEs into the banking system, this exemption, available for exposures up to Rs 25 lakh and credit disbursed up to October 1, is being allowed until December 31, 2021.