Industry body Confederation of Industry (CII) has urged the RBI to cut in CRR rate of at least 50 basis points and take measures to facilitate flow of credit to industry especially to MSMEs.

In an interaction with RBI governor Shaktikanta Das also said the liquidity concerns need to be addressed also to help the Infrastructure sector and address the high cost of credit by considering reduction in repo rate of 50 basis points given that inflation has been consistently low.

CII lauded the RBI for steps taken to ease financing challenges faced by the real sector, especially the MSMEs through various measures such as reducing Turn Around Time (TAT) and measures to boost liquidity in the economy.

The various in-house surveys conducted by CII recently revealed positive outlook on both top line as well as bottom line fronts but were cautious on industry performance due to factors like liquidity crunch, delayed payments and suppressed consumer demand, CII said.

On measures to address the financial challenges faced by the MSMEs, CII suggested that RBI consider limiting the collaterals sought by banks to 133% of the exposure and eliminate the need for personal guarantees where sufficient collateral exists.

CII also suggested that Letter of Undertaking (LoUs) for Buyers’ Credit for such cases where the MSMEs investing in expanding capacity may be permitted and RBI may consider allowing banks to sanction Buyers Credit facility to MSMEs, wherever import of raw materials is being done under Letter of Credit.

On liquidity challenges faced by NBFCs, CII highlighted the need to provide backstop facility to Housing Finance Companies (HFCs) through the National Housing Bank (NHB) and may extend the same facility directly to the systemically important deposit taking NBFCs (NBFCs-D) along with providing refinance facility for Mutual Funds to address the liquidity challenges.

CII further suggested to RBI that considering the important role played by extremely large NBFCs with impressive track record, there is a strong case for a separate classification of these NBFCs as “Exceptionally Large NBFCs (ELNBFCs)” to facilitate availability of liquidity window facilities akin to Banks and providing full access to the Aadhaar database as they significantly drive financial inclusion in the retail and SME segments.

To address funding issues in the infrastructure sector, CII said that there is a need for suitable intervention such as implementation of Debt resolution plan and Inter Creditor Agreement (ICA) on an urgent basis and also enhance opportunities for refinancing, takeout finance and credit enhancement by expanding capital base and operations of IIFCL and NIIF.

On February 12 Circular of RBI, CII highlighted that while the circular was aimed at improving the credit discipline and early identification of probable defaults, the circular has however put pressure on already distressed sectors impacted due to business performance reasons and hence should be given sufficient time to resolve the defaults.

Amongst many key recommendations, CII has recommended that RBI may revisit the lending restrictions of PCA banks and consider allowing them to lend to National Housing Bank which in turn can be used to finance housing projects through HFCs (Housing Finance Companies).