RBI Announces Steps to Boost Loans to Real Estate, Auto and MSMEs

Mumbai, February 6: The Reserve Bank of India (RBI) on Thursday announced several measures to boost loan growth to sectors like residential real estate, automobiles, and micro, medium and small enterprises (MSMEs).

While presenting the Union Budget 2020 on February 1, Finance Minister Nirmala Sitharaman said the government has asked the central bank to extend the debt restructuring window by another year ending March 31, 2021. RBI Monetary Policy: Repo Rate Unchanged at 5.15%, GDP Growth For 2020-21 Pegged at 6%.

The RBI has now said that banks will be allowed to deduct the equivalent of incremental credit disbursed as retail loans for automobiles, residential housing and loans to MSMEs over and above the outstanding level of credit to these segments as at the end of the fortnight ended January 31, 2020 from their net demand and time liabilities (NDTL) for maintenance of cash reserve ratio (CRR).

"This exemption will be available for incremental credit extended up to the fortnight ending July 31," it said in a statement on developmental and regulatory policies released alongside the sixth bi-monthly monetary policy statement.

The RBI said that MSMEs sector plays an important role in the growth of Indian economy, contributing over 28 per cent of the GDP, more than 40 per cent of exports while creating employment for about 11 crore people.

Considering the importance of MSMEs in the Indian economy and for creating an enabling environment for the sector in its efforts towards formalisation, a one-time restructuring of loans to MSMEs that were in default but 'standard' as on January 1, 2019 was permitted without an asset classification downgrade.

The restructuring of the borrower account was to be implemented by March 31, 2020, said RBI. The scheme has provided relief to a large number of MSMEs. "As the process of formalisation of the MSME sector has a positive impact on financial stability and this process is still underway, it has been decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST registered MSMEs that were in default as on January 1, 2020. The restructuring under the scheme has to be implemented latest by December 31, 2020," it said.

"This scheme will benefit the eligible MSME entities which could not be restructured under the provisions of the circular dated January 1, 2019, as also the MSME entities which have become stressed thereafter. It is re-emphasised that this is a one-time regulatory dispensation. Detailed guidelines in this regard will be issued shortly," said RBI.

Further, the central bank said the recently-implemented mechanism of linking floating-rate consumer loans and loans to micro and small enterprises to an external benchmark will also be extended to medium-sized enterprises. The central bank also extended the deadline to classify non-performing loans (NPAs) as standard by a year in cases of commercial real estate, where a project was stuck for reasons beyond the control of promoters.