Relief for MSMEs as RBI announces TLTRO targeted at NBFCs, MFIs

Representative image

The Reserve Bank of India Governor Shaktikanta Das on April 17 announced a targeted long-term repo operations (TLTRO) of Rs 50,000 crore that will benefit non-banking finance companies (NBFCs) and micro-finance institutions (MFIs), a move that will help small and medium-sized businesses.

The funds availed by banks under TLTRO 2.0 should be invested in investment-grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 percent of the amount going to small and midsized NBFCs and MFIs, the central bank said in a statement. The bank could also increase the size of TLTRO, Das said.

This is the second round of measures announced by the central bank since the viral outbreak to ease liquidity situation.

Also read: RBI Governor Shaktikanta Das launches Round 2 of liquidity bonanza; this time for small NBFCs, MFIs

NBFCs and MFIs play a crucial role in lending towards small and mid-sized enterprises (SMEs). As the lockdown continues, these businesses have been hit, with manufacturing has come to a grinding halt.

Estimating the business level and its impact on working capital and hence the availability of cash flows for debt servicing and repayment post the moratorium period would be a challenge, said Sanjay Doshi, Partner, Deal Advisory-Financial Services, KPMG India. However, there was a significant impact on cash flow, which may last from three to 12 months, Doshi said.

The latest move by RBI may help SMEs survive the current crisis as they face working capital issues.

Das, who held a video conference with the media, also announced relaxation of asset classification norms. The accounts availing the moratorium facility will be excluded from the 90-day NPA classification norms of the RBI.

“There will be an asset classification standstill for all such accounts from March 1 to 31 May 2020," Das said. The guidelines would also apply to NBFCs.

The central bank had on March 27 allowed banks and other financial institutions to allow borrowers to put on hold repayment of term loans for three months beginning March 1.

Most of the micro, small and medium enterprises’ transactions are cash-based and SMEs usually have a smaller working capital cycle of 90 to 120 days. The latest steps by the RBI will give the much-needed fund relief to them.