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RBI's new fiscal measures will give MSMEs much-needed pandemic relief: Experts
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Thursday, 06 May, 2021, 08 : 00 AM [IST]
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Ashwani Maindola, New Delhi
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The Reserve Bank of India (RBI), on Wednesday, made a slew of announcements as part of the fiscal measures amid the second wave of the pandemic. The announcements made were particularly in response to the credit crunch being faced by the MSME sector and experts feel that the measures will provide much-needed liquidity to sustain the operations.
The food sector, which primarily comprises the MSM enterprises, was expecting the relief.
Aashit Shah, Partner, J Sagar Associates, said, “The announcements made by RBI today will benefit the MSMEs and small businesses who have been adversely impacted by the second wave of the pandemic. Additional restructuring guidelines for MSMEs, small businesses and individuals will assist them tide over the uncertainties caused due to the second wave. These guidelines as well as the recently introduced pre-arranged insolvency resolution process will enable MSMEs to restructure their debts without the looming fear of losing or liquidating their businesses.”
The Reserve Bank of India with a view to incentivise credit flow to the micro, small, and medium enterprise (MSME) borrowers, in February 2021 has allowed the Scheduled Commercial Banks to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR).
In order to further incentivise inclusion of unbanked MSMEs into the banking system, this exemption currently available for exposures up to ?25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, is being extended till December 31, 2021, the RBI informed.
RBI added that domestically, aggregate supply conditions are underpinned by the resilience of the agricultural sector. The record foodgrains production and buffer stocks in 2020-21 provide food security and support to other sectors of the economy in the form of rural demand, employment and agricultural inputs and supplies, including for exports. The forecast of a normal monsoon by the India Meteorological Department (IMD) is expected to sustain rural demand and overall output in 2021-22, while also having a soothing impact on inflation pressures.
Also, RBI stated that consumption demand is holding up, with sales of consumer goods rising in double-digit in January-March 2021.
In a statement Chandrajit Banerjee, director general, CII, said, “At a time when the pandemic is posing new challenges for the economy, the well-calibrated first tranche of measures announced by the RBI today pertaining to supporting the small businesses and incentivising lending to the healthcare sector are indeed well-timed and propitious."
The Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs) facility of Rs 10,000 crore available to the limit of 10 lakh crore for micro and small organised sector would earmark special pocket of liquidity for the MSMEs to ease off the pandemic related crunch faced by the sector.
“Also the announcement related to Resolution Framework 2.0, for the extension of the resolution plan by 2 years for the borrowers from the individual, small business and MSMEs categories, who had previously availed of restructuring in the Resolution Framework 1.0 announced by RBI in August 2020, gives a certain degree of leg-room to the stressed small businesses and individuals who are severely impacted by the economic downside of the pandemic especially in the second wave,” he said.
The RBI concluded that it will closely and continuously monitor all incoming data to assess on a real-time basis the impact of the second wave on macro-economic and financial conditions.
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