RBI asks banks to seek refinance credit to fund small units

The Reserve Bank of India (RBI) has asked banks to avail of refinance facility it provides to extend credit support to micro and small enterprises.

"Banks are encouraged to use this (refinance) facility for the purpose of extending finance to micro and small enterprises," the central bank said in a notification.

The RBI earlier in the month allowed banks to seek refinance from the central bank up to one per cent of their deposits at 7.5 per cent (repo rate) under the liquidity adjustment facility (LAF) up to 90 days.

The decision was aimed at addressing the liquidity crunch being faced by small and micro enterprises and formed part of the steps being taken by the central bank to infuse liquidity in the system.

RBI since October has taken a host of steps like reduction in mandatory deposits that banks keep with the central bank and the amount they are required to invest in government securities.

In the last one month, RBI has infused liquidity to the tune of Rs 2,70,000 crore by cutting the cash reserve ratio by 350 basis points and statutory liquidity ratio by 100 basis points.

The central bank has also reduced the short-term lending (repo) rates by 150 basis points to 7.5 per cent signalling a soft interest rate regime.