Covid-19: MSMEs cautiously welcome RBI measures, exporters want more

Calls for economic package for distressed sectors continue

Small businesses said though they welcomed the Reserve Bank of India’s (RBI’s) decision to address the liquidity crunch they were facing, they expected more in the way of support, considering the disruption in supply chains, lack of business, and short supply of labour, because of the nationwide lockdown.

Under pressure to facilitate the flow of more money to micro, small and medium enterprises (MSMEs), the RBI on Friday announced a targeted long-term repo operation (TLTRO) of ~50,000 crore aimed at small and mid-sized non-banking financial companies (NBFCs) and micro finance institutions (MFIs).

In a hint that the lockdown’s impact could worsen, Union Finance Minister Nirmala Sitharaman later said the amount could be increased if needed.

“We are a bit disappointed. We expected more from the RBI on addressing the fact that banks are not respecting the latest changes in lending norms. They also continue to have significant flexibility in implementing the norms on non-performing assets (NPAs),” said Anil Bhardwaj, secretary general of Federation of Indian Micro and Small & Medium Enterprises. Banks need to be told strictly to pass on the benefits, he added.

The RBI has mandated that funds availed by banks under TLTRO 2.0 should be invested in investment-grade bonds, commercial papers, and non-convertible debentures of NBFCs. 

 

 

“What is more welcome is the announcement that at least 50 per cent of this must go to mid- and small-sized NBFCs and MFIs. The special refinance facilities to NHB, SIDBI and NABARD would also play a constructive role,” said Niranjan Hiranandani, president of industry body Assocham.

SIDBI will come out with a product based on terms and conditions that come with the refinancing facility from RBI, said Mohammad Mustafa, its chairman and managing director. The refinancing will reduce the cost of funds for SIDBI as money will come at policy repo rate, which remains at 4.4 per cent and it will pass on the benefit in the form of lower in-lending rate, he added.

Industry insiders hope the impact of the measures would be felt soon. RBI has mandated that NBFCs have to invest the funds they receive within a month of availing the loan from RBI.

“The reverse repo rate cut by 25 bps from 4 per cent to 3.75 per cent is appreciable as it will make it unattractive for banks to passively deposit funds with the RBI and instead lend it to productive sectors. But we urge the government to provide an increased stimulus relief package of ~16 trillion, which is around 7 per cent of GDP (gross domestic product) sooner than later to mitigate the impact of Covid-19 on economy, trade and Industry,” said D K Aggarwal, president of the PHD Chamber of Commerce and Industry.

Exporters want more

Exporters remain unhappy despite the latest measures. “The 90 days NPA norms to exclude moratorium or deferment period will give relief particularly to MSME units. But we again stress that government should immediately announce a comprehensive economic package for the industry to provide relief in payment of wages, statutory obligations, rental and utilities,” said Sharad Kumar Saraf, president of the Federation of Indian Export Organisations.

Saddled with weak domestic demand and intense competition from major international rivals, exporters have sought extension of pre and post-shipment credit tenure, interest-free loan to cover forward losses and enhancement of export benefits.

According to a report World Trade Organisation, quoted by the RBI Governor Shaktikanta Das, global trade is expected to decline up to 32 per cent in 2020. “With China recovering from the pandemic’s impact, it would flood global markets with essential supplies. India needs to have a specific strategy that should ride on empowering exporters to deal with this challenge,” said Ravi Sehgal, chairman of Engineering Exports Promotion Council India.

Meanwhile, the Apparel Export Promotion Council on Friday requested the central bank to protect exporters from penalty on forward covers due to exchange rate fluctuations. Exporters are concerned about sharp fluctuations in currency in the past few weeks and the resultant penalty that banks charge on cancellations and exchange rate differential charges for the period for which the forward cover was booked, AEPC Chairman A Sakthivel said in a letter to the RBI governor.