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Liquidity Aid from RBI to help COVID-hit MSMEs recover

Since the second wave of the pandemic hit the country after mid-February this year. MSMEs, particularly in retail and the hospitality sectors, have been demanding immediate credit support to cover business losses caused by lockdowns across the country. The second wave has slowed the recovery efforts of small businesses that were approaching pre-CoVID levels of business growth.

Representatives of India's vast MSME sector have welcomed the Reserve Bank of India's liquidity support measures announced on Friday, claiming that the new incentives will put small businesses back on track by providing immediate relief from the working capital crisis. On Friday, the central bank announced Rs.16,000 crore in special liquidity support to SIDBI for on-lending or refinancing for up to a year in order to support MSMEs, particularly in credit-deficient and aspirational districts. The RBI also raised the maximum aggregate exposure threshold for MSMEs, small businesses, and individual loans from Rs.25 crore to Rs.50 crore under the Resolution Framework 2.0, allowing more borrowers to benefit from debt restructuring. Furthermore, until March 31, 2022, a separate liquidity support of Rs.15,000 crore with a tenure of up to three years was announced for contact-intensive sectors such as hospitality and ancillary services, as well as beauty and personal care segments.

“While the lockdown-like restrictions will continue to affect the hospitality, travel, and beauty and salon sectors in the coming months, merchants will continue to face revenue pressures. This move will assist these industries in overcoming cash shortages and working capital issues,” said Manish Patel.

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

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