RBI keeps fund tap open for small units

Banks told to contribute Rs 2,000 cr to Sidbi’s MSME corpus.

The Reserve Bank of India (RBI) On Tuesday stepped up its drive to ensure adequate cash flow to small and medium enterprises (SMEs) and asked bankers to monitor payments by large corporate entities to these units.

In a circular issued On Tuesday, RBI asked bank chiefs to ensure that there is a timely restructuring of loans and additional facilities are made available. In this context, the regulator asked the state-level bankers’ committee to take up the issue with SME industry representatives and also ensure that non-credit-related issues are also raised with the authorities concerned. Further, the regional and zonal offices of all banks have been asked to monitor the flow of credit to SMEs.

 

The circular also told bankers to submit a report on cash and credit flow, restructuring and related aspects by the end of the month.

RBI has asked banks to contribute Rs 2,000 crore to the Micro, Small & Medium Enterprises (MSME) (Refinance) Fund, maintained by the Small Industries Development Bank of India (Sidbi), in advance to provide further liquidity for lending to SMEs. The contribution to the fund will be on the basis of banks’ projected shortfall in achievement of the sub-target of 10 per cent for lending to the weaker section category as on the last reporting Friday of March 2009.

The additional fund flow to Sidbi comes along with the Rs 7,000-crore refinance window opened for the institution to lend to banks, state finance corporations or directly at a lower rate. Sidbi will be able to raise resources at 6.5 per cent under the repo window, which will help it lower the cost of funds.

SMEs have been facing an acute liquidity crunch as banks have been unwilling to lend. In recent months, their financial position has also been affected as companies they supply to have lowered orders due to the economic slowdown.

In addition, the demand in overseas markets has also come down due to a recession in many economies. As a result, RBI has announced a series of measures, including considering restructuring the dues of SMEs, permitting a second restructuring besides opening special refinance windows.

In case of cash flows from large companies, RBI has said that while sanctioning or renewing credit limits of borrowers enjoying working capital limits of Rs 10 crore or more, banks have to fix separate sub-limits specifically for meeting payment obligations for purchases from SMEs.

The size of the sub-limits is decided after factoring in the projected purchases by corporate borrowers from SSIs during a year and other factors. Banks also need to ensure that the sale proceeds and other receipts of the large borrower are credited to the sub-account on a pro-rata basis.

In On Tuesday’s circular, RBI has asked banks to periodically ascertain from their corporate borrowers the extent of their dues to small-scale suppliers and ensure that companies pay off such dues before the appointed day by using the balance available in the sub-limit. If the sub-limit is exhausted, there is no bar on such payments being made from the other segment of the working capital limit.