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30/12/2016 10:07am

RBI advises banks to allow additional working capital to MSEs but are the Banks listening?

image RBI advises banks to allow additional working capital to MSEs but are the Banks listening?

New Delhi, Dec 30 (KNN) Modi Government is pulling all stops to make life easier for business while implementing ‘Notebandi’.

By a recent circular, Reserve Bank of India has advised banks to” allow  additional working capital limits  to their MSE borrowers, to overcome the difficulties arising out of withdrawal of legal tender status of ₹ 500 and ₹ 1000 denominations”.

RBI has also mentioned that  this initiative is based on feedback that some MSEs are facing temporary difficulties in carrying out their normal business due to cash flow mismatches, due to demonetisation and will be an one time measure upto 31st march, 2017.

The MSME fraternity have widely welcomed this gesture of the RBI and are expressing hope that Banks will  follow the instructions in letter and spirit to help the large number of MSMEs,  facing acute fund shortage.

The demonetisation  and ‘cashless’ drive of the Government has caused serious cash flow problems for the MSMEs who so far operated mainly on cash basis.

With business credits almost trickling out from the informal sources, which were the major source of funds for the vast majority of the MSMEs, the sector is in deep crisis.

The slowdown in the demand from the market is reported to be making the procurement of inputs and pay to the workers difficult  in a large number of clusters, leading to widespread layoffs  and even closure of business.

At this juncture availability of additional working capital will be a real facilitator for running the businesses.

Commenting on the development an expert on MSME finance, mentioned that while the initiative by the RBI  will bring a great relief to the sector, the moot question is whether the Banks will toe the line.

He mentioned that last year itself  RBI has advised the Banks to allow the MSEs  a separate additional limit of the working capital, specifically for meeting the temporary increase in working capital requirements arising due to unforeseen reasons.

However, the Banks have largely ignored the instructions and starved the sector of funds often with the plea of ‘poor’ performance. If the Government can make the Banks to support the MSMEs at this hour of agony, uncertainty and distress, it will be a real handholding towards cashless business, the expert opined.


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