Here comes a relief measure for micro, small and medium enterprises (MSMEs) as Reserve Bank of India (RBI) has announced two relief for MSME by providing them some additional time to repay banks. The central bank has released a statement for all banks and NBFCs to allow micro, small and medium enterprises registered under GSR to repay their dues occurring between 1st. Sep ’17 to 31st Jan’18 within 180 days of their due date. This extension of dates is applicable for only those MSMEs who were standard as of 31st. August.2018, and for which aggregated exposure does not exceed Rs. 25 C as of 31st. January’18. The RBI relief statement for MSME sector before the end of financial year is not less than any bliss.
The central bank also said that “All bank loans to MSMEs would now qualify under priority sector lending without any credit caps. Currently, applicable loan limits of Rs 50 million and Rs 100 million per borrower to service MSMEs for classification under the priority sector has also been removed. The removal of credit cap will help banks seamlessly improve and increase their priority sector lending portfolio, besides sparing the need to park funds under the RID Fund at a less interest rate. Before this extension in the number of days for repayments to the bank, there were only 90 to 120 days allotted by banks and NBFCs’ respectively for repayment before their account got classified as an NPA. The RBI today said it would allow up to 180 days to make loan repayments to GST-registered MSMEs with aggregate standard exposure of up to Rs 25 crore and amounts overdue as on September last year.
This RBI relief statement for MSME is a measure to cure the loss small medium enterprises faced because of the implementation of GST. The formalization of business through registration under GST adversely impacted cash flows of the smaller entities during the transition phase. Consequently, they faced difficulties in meeting their repayment obligations to banks and non-banking financial companies (NBFCs). The increment in the number of the day will benefit to both MSMEs and banks as it will give breathing space and reduce additional slippage.
Meanwhile, the Reserve bank of India also set sub-targets for lending to the priority sector for foreign banks with 20 branches or more for the financial year 2018-19. Bank loans to MSME engaged in the constructing or rendering of services as defined in terms of investment in equipment under MSMED Act 2006, will qualify under priority sector without credit cap. So basically the removal of the credit cap will help all banks to increase their priority in lending portfolios. It is expected that RBI relief statement for MSME sector will do justice and micro, small and medium enterprises will definitely take full advantage of this enhancement in 180 days.