New refinancing window a boon for Indian SME sector
Monday, 8 December 2008
NEW DELHI, Dec 7 (Internet): The new Rs 70 billion refinance window opened by Reserve Bank of India (RBI) has come as a ray of hope to the beleaguered and cash-starved micro and small enterprises (MSEs) sector, which account for 39 per cent of India's manufacturing output.
The Small Industries Development Bank of India (Sidbi) Saturday said it will soon put into motion the refinance window soon after its board meets next week to work out the operational modalities. The facility would be available for incremental loans, which will be computed on the basis of outstanding as on September 30, 2008, the RBI said.
"The RBI decision would definitely increase loans to micro and small industries, directly and indirectly. We are soon going to study how the window could be put to use," Sidbi chairman and MD RM Malla said.
Since the refinancing window would be available at the prevailing repo rate, which the RBI slashed to 6.5 per cent Saturday, December 06, 2008, the ultimate beneficiary borrowers will be able to access funds at relatively attractive rates. The facility, which would be available till March 31, 2010, allows Sidbi to borrow funds for 90 days, with a roll-over facility.
"The liquidity support provided to the Sidbi under the refinancing arrangement is expected to alleviate the credit stress/tightening of lending conditions confronting micro and small enterprises and should revive activity in these employment-intensive drivers of growth," RBI governor D Subbarao said.
The sector will also benefit significantly from the central bank's move asking banks to keep borrowers eligible for fresh credit even after their loans have been restructured twice. "This would mean that if the bank restructures a loan given to an MSME, the loan would not be shifted to non-performing assets and continue to be treated as standard. The step would make MSMEs eligible for fresh loans," Malla said.
However, micro, small and medium enterprises (MSMEs) sounded unenthusiastic. Though National Small Industries Corporation head HP Kumar said the second restructuring of loans to MSMEs would help, although he wasn't too thrilled about the refinance window.
"In the first place, there was no need for this refinance facility because banks could have lent on their own. Secondly, the refinance facility to SIDBI is less likely to benefit as refinance is helpful only when banks are lending to the sector," Kumar said.
The RBI has allowed SIDBI to lend funds from this window to banks, non banking financing companies and state finance corporations to refinance their incremental lending of these institutions to MSEs.
KG Muralidharan, president BHEL Small & Medium Enterprises Association that represents 300 firms, said RBI should not stop with these measures and monitor the situation on a continuous basis. "Something should also be done for the medium scale enterprises," he said.
The Small Industries Development Bank of India (Sidbi) Saturday said it will soon put into motion the refinance window soon after its board meets next week to work out the operational modalities. The facility would be available for incremental loans, which will be computed on the basis of outstanding as on September 30, 2008, the RBI said.
"The RBI decision would definitely increase loans to micro and small industries, directly and indirectly. We are soon going to study how the window could be put to use," Sidbi chairman and MD RM Malla said.
Since the refinancing window would be available at the prevailing repo rate, which the RBI slashed to 6.5 per cent Saturday, December 06, 2008, the ultimate beneficiary borrowers will be able to access funds at relatively attractive rates. The facility, which would be available till March 31, 2010, allows Sidbi to borrow funds for 90 days, with a roll-over facility.
"The liquidity support provided to the Sidbi under the refinancing arrangement is expected to alleviate the credit stress/tightening of lending conditions confronting micro and small enterprises and should revive activity in these employment-intensive drivers of growth," RBI governor D Subbarao said.
The sector will also benefit significantly from the central bank's move asking banks to keep borrowers eligible for fresh credit even after their loans have been restructured twice. "This would mean that if the bank restructures a loan given to an MSME, the loan would not be shifted to non-performing assets and continue to be treated as standard. The step would make MSMEs eligible for fresh loans," Malla said.
However, micro, small and medium enterprises (MSMEs) sounded unenthusiastic. Though National Small Industries Corporation head HP Kumar said the second restructuring of loans to MSMEs would help, although he wasn't too thrilled about the refinance window.
"In the first place, there was no need for this refinance facility because banks could have lent on their own. Secondly, the refinance facility to SIDBI is less likely to benefit as refinance is helpful only when banks are lending to the sector," Kumar said.
The RBI has allowed SIDBI to lend funds from this window to banks, non banking financing companies and state finance corporations to refinance their incremental lending of these institutions to MSEs.
KG Muralidharan, president BHEL Small & Medium Enterprises Association that represents 300 firms, said RBI should not stop with these measures and monitor the situation on a continuous basis. "Something should also be done for the medium scale enterprises," he said.