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RBI measures to protect small and medium businesses from pandemic impact

Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

RBI measures to protect small and medium businesses from pandemic impact:


Context:

The Reserve Bank of India has announced measures to protect small and medium businesses and individual borrowers from the adverse impact of the intense second wave of COVID-19 buffeting the country.

Measures announced:

  1. The RBI has decided to conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at the repo rate for Small Finance Banks. The SFBs would be able to deploy these funds for fresh lending of up to ₹10 lakh per borrower.
  2. SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to ₹500 crore) for onlending to individual borrowers as priority sector lending.
  3. To enable the State governments to better manage their fiscal situation in terms of their cash flows and market borrowings, maximum number of days of overdraft (OD) in a quarter is being increased from 36 to 50 days and the number of consecutive days of OD from 14 to 21 days.

Who is eligible?

  1. Those with aggregate exposure of up to ₹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.
  2. In respect of individual borrowers and small businesses who had already availed restructuring under Resolution Framework 1.0, lenders have been permitted to use this window to modify such plans to the extent of increasing the period of moratorium and/or extending the residual tenor up to a total of two years.
  3. In respect of small businesses and MSMEs restructured earlier, lending institutions have been permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle and margins.

Sources: the Hindu.