RBI Announces Measures to Support Small and Medium-sized Industries during the Coronavirus Crisis

The Reserve Bank of India (RBI) today announced several measures to ensure enhancing of liquidity and improve credit supply in the market. The move is expected to benefits small and medium-sized industries that have had to bear the impact of the nose-diving economy due to the Coronavirus crisis. Amongst the highlights of the announcement made by RBI governor Shaktikanta Das was the 50,000 crore rupees booster package for small and medium-sized industries to recover from the lockdown.

In order to increase to credit farmers, MSMEs and housing sector, RBI has announced a special refinance facility totalling Rs 50,000 crore for NABARD, SIDBI and the National Housing Bank. Of this, Rs 25,000 crore goes to NABARD, Rs 15,000 crore to SIDBI, and Rs 10,000 crore to NHB, says Finance Minister Nirmala Sitharaman.

Furthermore, to address concerns of MSMEs that are in danger of becoming non-performing asset (NPA) accounts, it has now been decided that the NPA classification norms will exclude the 3-month moratorium window that banks are allowed to give on loan repayments.

Also, the reverse repo rate has been slashed from 4 percent to 3.75 percent while keeping the repo rate unchanged. The policy repo rate under the Liquidity Adjustment Facility (LAF) remains unchanged at 4.40 percent and the interest rate on the marginal standing facility (MSF) under the LAF and the Bank Rate remains unchanged at 4.65 percent, said Das.

“Today’s announcements by RBI will greatly enhance liquidity and improve credit supply. These steps would help our small businesses, MSMEs, farmers and the poor. It will also help all states by increasing WMA limits,” tweeted Prime Minister Narendra Modi.

RBI had announced an increase in the Way and Means Advances (WMA) limit of the States on 1 April 2020. With a view to providing greater comfort to the States to undertake COVID-19 containment and mitigation efforts and enable them to better plan their market borrowings, it has been decided to increase the WMA limit of the States by 60% over and above the level as on 31 March 2020 and the increased limit will be available till 30 September 2020, says RBI.

Initial industry reactions on the RBI measures seem to be positive. "The series of measures announced by the RBI Governor today include reduction of reverse repo rate by 25 basis points, auction of TLTROs to a tune of Rs 50,000 crores and refinancing to the AFIs to the tune of Rs 50,000 crores; these measures will boost liquidity and facilitate provision of funds for the MSMEs to meet their operational expenses and bring back their business to normalcy along with bringing the economy on a trajectory path. The RBI has also decided to infuse funds to the NBFCs and AFIs, which will provide a lifeline of MSMEs as loan for restoring operations and also enable them to spend money on cloud-based applications to manage their business more efficiently during this time," says CMA B Mallikarjun Gupta, Chief Taxologist, Logo Infosoft.