In a bid to provide relief to micro, small and medium enterprises (MSMEs) amid the second wave of coronavirus outbreak, the Reserve Bank of India on Friday extended a special liquidity facility of Rs 16,000 crore to Small Industries Development Bank of India (SIDBI). “To further support the funding requirements of micro, small and medium enterprises (MSMEs), particularly smaller MSMEs and other businesses including those in credit deficient and aspirational districts, it has been decided to extend a special liquidity facility of ₹16,000 crore to SIDBI for on-lending/ refinancing through novel models and structures,” the central bank said.
“This facility will be available at the prevailing policy repo rate for a period of up to one year, which may be further extended depending on its usage,” it further mentioned.
The central bank decided to keep the key lending rates unchanged in its Monetary Policy Meet from June 2-4. “The MPC voted unanimously to maintain status quo, keeping the policy repo rate unchanged at 4 per cent. The MPC also decided unanimously to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward,” RBI said.
Earlier in May, RBI announced Resolution Framework 2.0 to provide some relief to MSMEs, non-MSME small businesses and individuals who borrowed loans. “With a view to enabling a larger set of borrowers to avail of the benefits under Resolution Framework 2.0, it has been decided to expand the coverage of borrowers under the scheme by enhancing the maximum aggregate exposure threshold from ₹25 crore to ₹50 crore for MSMEs, non-MSME small businesses and loans to individuals for business purposes,” RBI said.
What it means for MSMEs:
“It is appreciative of RBI to address the pandemic effects on multiple micro and small businesses like salons, car repair and rental services, who saw miniscule business. Considering the significant contribution of MSMEs to GDP, the relief measures will catalyze MSME recovery and further stimulate financial stability in the economy. The measures announced would certainly assist in their revival process,” said Shachindra Nath, executive chairman and managing director, U GRO Capital.
“This is definitely a positive move in the right direction for India’s economic recovery. This special liquidity facility will provide the necessary stimulus to several SMEs. This indeed reiterates the regulator’s commitment to create an ecosystem that helps multiple players, irrespective of scale, flourish as well as help preserve financial stability. The fact that the facility will be available at the existing repo rate for a period of one year (could be extended on need-basis) will help SMEs cope with the stress as well as the losses incurred during the pandemic,” said Gurjodhpal Singh, chief executive officer, Tide.
“Increase of the monetary threshold to Rs 50 crore is a welcome step as it would extend the benefit of the Resolution Framework 2.0 to a larger base of borrowers who are otherwise eligible to avail restructuring under the said framework, but were left out previously,” said Girish Rawat, partner, L&L Partners.
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