Enhance working capital limit for MSMEs: RBI to banks

In a relief to small and medium enterprises hit by demonetisation, Reserve Bank of India (RBI) on Thursday said banks may provide 'additional working capital limit' to micro, small and medium enterprises (MSME) borrowers.

"Banks are hereby advised that they may use the facility of providing... 'additional working capital limit' (approved by their boards) to their MSE borrowers, to overcome the difficulties arising out of such cash flow mismatches also," RBI said in a notification.

This would be a one-time measure up to March 31 and should thereafter be normalised in fresh working capital assessment cycle, it said.

Consequent upon withdrawal of legal tender status of Rs 500 and Rs 1000 notes and based on feedback that some MSEs are facing temporary difficulties in carrying out their normal business due to cash flow mismatches, the decision was taken, the central bank said.

Prime Minister Narendra Modi on November 8 announced scrapping of Rs 500 and Rs 1,000 notes, which resulted in cash crunch in the market and slowdown in business.

The contribution of MSME sector, including service segment, to the country's GDP is around 40 per cent, while the total employment in the sector is 805.24 lakh.

On Wednesday, the RBI gave borrowers another 30 days over and above the 60 days for repayment of housing, car, farm and other loans worth up to Rs 1 crore before their accounts are classified as non-performing asset (NPA).

So, borrowers together get 90 days breather from getting the account classified under NPA category.

The above dispensation will apply to dues payable between November 1 and December 31, 2016, it said.