In a major relief to small and medium enterprises, the RBI last week decided to extend the benefit of one-time loan restructuring without an asset classification downgrade to standard accounts of GST registered MSMEs that were in default as on January 1, 2020. The move came on the heels of Finance Minister Nirmala Sitharaman, while presenting Union Budget 2020 on February 1, declaring that the government had asked the central bank to extend the scheme by another year.

Without an iota of doubt, the move will provide a much-needed relief to our MSMEs. In its monetary policy review, the RBI stated that the sector plays an important role in the growth of the Indian economy, contributing in a major way to exports, job creation and GDP. Considering this, it has been decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST registered MSMEs that were in default as on January 1, 2020.

In another major decision, the central bank has decided to link pricing of loans by scheduled commercial banks for medium enterprises to an external benchmark. Several measures have been declared also to boost realty, housing and NBFC segments. Now, if banks give incremental housing, auto and MSME loan then that amount will be deducted from cash reserve ratio. This will result in banks having more money in hands. These credit-boosting measures are need of the hour.

While the above measures are welcome, the Centre should not miss the point that our MSMEs are grappling with the problem of delayed payments and slowdown in demand, and there is an urgent need to take more measures to address the working capital needs of the sector. At the same time it is also of utmost importance that the health of the banking sector is not compromised while ensuring adequate credit to these productive sectors.

I invite your opinions.