RBI announcements to support MSME recovery post-second wave

The pandemic and the consequent lockdowns have had widespread consequences and impacted MSMEs significantly. To ease the burden on small businesses, RBI has brought forth several measures and relaxation to breathe life into these enterprises. 

While India was quick to curb the first wave, the sheer intensity of the second wave could have long term ramifications. The new strain put immense pressure on healthcare. India had to take action on a war footing to boost the supply of essentials. Now that the battle against the virus has progressed favourably, it is crucial to take timely measures to infuse cash into the economy and minimise the impact on small businesses. 

RBI Measures for MSMEs

The measures announced by the RBI exemplified a comprehensive strategy to support recovery and revival post the second wave of the pandemic.

1. Relaxation in the overdraft facility

RBI provided relaxation to the states concerning the OD facility. As a result, the number of consecutive days was increased from 14 to 21, and the maximum number of overdrafts in a quarter was increased to 50 days from the earlier 36. This relaxation can be availed till September 30 2021.

2. Easy access to emergency healthcare services

RBI announced two measures to achieve effortless access to funding for critical healthcare services – 

• “Term Liquidity Facility” of Rs. 50,000 crores
• “On-tap-liquidity” of up to Rs. 50,000 crores at repo rate for a tenor up to three years.

These measures will enable banks to extend financial support to vaccine manufacturers, importers and suppliers of crucial medical supplies and vaccines and covid-related drugs, patients, hospitals and more. Such lending will be classified under priority sector till repayment or maturity (whichever is earlier), thereby incentivising banks to support the front-line companies. RBI has assured the availability of this scheme till March 31 2022.

3. Rationalisation of compliance requirements of KYC

Taking the second wave into consideration, RBI has provided certain relaxations in terms of the compliance requirements for KYC.

• If KYC is due or pending for a customer account, no punitive action will be taken on its operations till December 31 2021, unless warranted.
• Video KYC, known as V-CIP, will be promoted for new categories of customers such as beneficial owners of legal entities proprietary firms, authorised signatories, and for updating of KYC.
• The KYC process will be made more user-friendly and digital channels for seamlessly updating the latest information. 
• The limited number of KYC accounts that were opened in Aadhar e-KYC authentication in non-face-to-face mode will be converted to fully compliant KYC accounts.
• KYC Identifier of Centralised KYC Registry can be used for V-CIP, and e-documents, including those in DigiLockers, can be submitted as ID proofs.

Additional Read: Choosing the right working capital solution

4. Special long-term repo operations (SLTRO) for small finance banks (SFBs)

To support SFBs playing a vital role in financing small businesses in the last mile, RBI has announced a special 3-year SLTROs of Rs. 10,000 crores. The facility will be available till October 31 2021, and will aid these banks in the fresh lending of up to Rs. 10 lakhs per borrower.

5. Resolution 2.0 Framework

Individuals and small businesses meeting the following conditions will be classified as “Standard” and considered under Resolution 2.0 framework if the aggregate exposure is less than Rs. 25 crores. 

Financers can invoke restructuring under the proposed framework to September 30 2021. Moreover, this restructuring needs to be implemented within 90 days of being invoked. If the borrower has already availed of the loan modification under the Resolution 1.0 Framework, the lending institutions can further extend the restructuring window. 

6. Further incentivisation to the “unbanked” MSME entrepreneurs

The RBI first announced this measure in February 2021 and allowed Scheduled Commercial Banks to deduct the credit allotted to new MSME borrowers from NDTL to calculate the CRR. This exemption is currently available for exposures up to Rs. 25 lakhs and is applicable on credit disbursed till December 31 2021.

Additional Read: Revitalize your financial health by efficiently managing your working capital

Over to you

The RBI rightly recognises the importance of strengthening grassroots level enterprises to revive the economy and embark on the path towards recovery. At Tata Capital, we continue our commitment towards supporting small businesses with ease in access to financing. Reach out to Team Tata Capital to know how we can finance your business in these challenging times.