RBI panel suggests ?5,000 crore stressed asset fund for small businesses

Reserve bank of India

Mumbai: A Reserve Bank of India (RBI) committee, set up to look into the problems of domestic micro, small and medium enterprises (MSMEs), has suggested creating a ?5,000-crore stressed asset fund.

The committee is chaired by U.K. Sinha, former chairman, Securities and Exchange Board of India (Sebi).

“The committee recommends for the creation of a distressed asset fund, with a corpus of ?5,000 crore, structured to assist units in clusters where a change in the external environment, e.g. a ban on plastics or ‘dumping’ has led to a large number of MSMEs becoming non-performing assets (NPAs),” according to the report published on Tuesday.

The fund, the report said, could operate on the lines of the Textile Upgradation Fund Scheme (TUFS).

In January 2019, the RBI constituted the expert committee on MSMEs to undertake a comprehensive review of the sector and identify causes and propose long-term solutions. The committee held 15 meetings, had consultations with industry associations and state governments across the country, and submitted its report on 18 June.

The report pointed out that small industries faced problems of delayed payments and were reluctant to enforce legal provisions available to them under the MSMED Act due to their low bargaining power.

It recommended amendment to the MSMED Act, requiring all MSMEs to mandatorily upload all their invoices above an amount to be specified by the government, from time to time. This mechanism will entail automatic display of names of defaulting buyers, and also act as a moral suasion on buyers to release payments to these suppliers, the report said.

The committee also recommended expanding the role of SIDBI, the apex body responsible for the development of the MSME sector. “SIDBI should deepen credit markets for MSMEs in underserved districts and regions by handholding private lenders such as non-banking financial companies (NBFCs) and micro finance institutions (MFIs). Further, they must develop additional instruments for debt and equity, which would help crystallise new sources of funding for MSMEs and MSME lenders,” it said.

That apart, the committee suggested that the PSBLoansIn59Minutes portal should also cater to new entrepreneurs, who might not necessarily possess information, including GSTIN, income-tax returns and bank statement. “A timeline of 7–10 days needs to be fixed for disposal of applications, which have received in-principle approval; the threshold of loan should be enhanced up to ?5 crore,” it said.

Other suggestions of the committee include introduction of adjusted priority sector lending (PSL) guidelines for banks to specialise in lending to a specific sector; doubling the collateral-free loan limit to ?20 lakh; and providing insurance coverage to MSME employees by the government.

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