RBI’s liquidity support to help Covid-hit MSMEs get back on recovery path, tide over cash crunch: Experts

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June 06, 2021 1:24 PM

Ever since the second wave of the pandemic struck post-mid-February this year, MSMEs, particularly in retail including the hospitality sector, have been demanding immediate credit support to tide over business losses due to lockdowns across the country. The second wave had pulled down the recovery efforts of small businesses nearing the pre-Covid level in business growth.

textile industryThe RBI had in early May announced Resolution Framework 2.0 for individuals, small businesses, and MSMEs.

Representatives of India’s vast MSME sector — welcoming the liquidity support measures announced by the Reserve Bank of India on Friday — have said that the latest incentives would put small enterprises back on the recovery path with immediate relief from the working capital crisis. On Friday, the central bank had announced Rs 16,000 crore of special liquidity support to SIDBI for on-lending or refinancing for up to one year to cater to MSMEs particularly in credit-deficient and aspirational districts. The RBI had also enhanced the maximum aggregate exposure threshold from Rs 25 crore to Rs 50 crore for MSMEs, small businesses, and individual loans to enable more borrowers with debt restructuring under the Resolution Framework 2.0. Moreover, a separate liquidity support of Rs 15,000 crore with tenure up to three years was announced for contact-intensive sectors such as hospitality and ancillary services along with beauty and personal care segments till March 31, 2022.

“RBI’s move on extending Rs 15,000 crore liquidity window for contact intensive sectors comes as a huge relief to MSMEs…While the lockdown-like restrictions will continue to impact the hospitality industry, the travel industry, and the beauty and salon segment for the coming months as well, merchants will continue to face revenue pressures. This move will help these sectors tide over the cash crunch and working capital issues,” said Manish Patel, Founder and CEO, Mswipe.

The RBI had in early May announced Resolution Framework 2.0 to allow individuals, small businesses, and MSMEs — with loans up to Rs 25 crore and who have not availed restructuring under Resolution Framework 1.0 and others and were classified as ‘Standard’ as on March 31, 2021 — avail one-time restructuring under the proposed framework till September 30, 2021. However, for those who had availed restructuring under Resolution Framework 1.0, Governor Shaktikanta Das had allowed banks to modify their plans to increase the period of the moratorium and/or extend the residual tenor up to a total of two years.

“RBI has decided to extend a special liquidity facility of Rs 16,000 crore to SIDBI for on-lending/ refinancing through novel models and structures. The impact will be visible in ensuring sustained credit flow in the real economy. Further expanding the Resolution framework 2.0 to Rs 50 crore will extend the credit coverage to a higher number of individuals and businesses…The relief measures will catalyze MSME recovery and further stimulate financial stability in the economy,” Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital.

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Ever since the second wave of the pandemic struck post-mid-February this year, MSMEs, particularly in retail including the hospitality sector, have been demanding immediate credit support to tide over business losses due to lockdowns across the country. The second wave had pulled down the recovery efforts of small businesses nearing the pre-Covid level in business growth.

“The RBI Governor’s statement continued the cautionary, calibrated, and need-of-the-hour stance of the RBI. Given the clear impact of COVID-19’s second wave on non-urban areas, the focus on the wider local economy, especially the MSME and the mom and pop shops which are still vital to the overall fabric of India, has been a major focus of the proposed measures. Having addressed the creation and supply of liquidity, the RBI has consciously considered the need to ensure equal distribution of credit and liquidity to the particularly affected sectors,” said Anish Mashruwala, Partner, J Sagar Associates.

The central bank had categorically cited in its statement on Friday that hotels and restaurants, travel agents, tour operators, and adventure/heritage facilities, aviation ancillary services such as ground handling and supply chain, and other services that include private bus operators, car repair services, rent-a-car service providers, event/conference organisers, spa clinics, and beauty parlours or saloons are the contact-intensive sectors for which the separate Rs 15,000 liquidity window has been opened. While the industry body Federation of Hotel & Restaurant Associations of India (FHRAI) welcomed the move, it requested the RBI to extend the tenure from three years to five years.

“Infusing liquidity will provide the much-needed liquidity support to cash-strapped hospitality businesses without which the industry couldn’t have survived. However, we request the RBI to extend the tenure for at least five years. A duration of three years is just not sufficient to recover from the financial turbulence that the industry is going through…The Hospitality sector was at the brink of collapse with revenues dwindling to below 10 per cent of pre-COVID levels. The announcement has offered the industry a lifeline in its efforts to survive,” said Gurbaxish Singh Kohli, Vice President, FHRAI.

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