It is the MSME sector of India that contributes to 95 percent of the manufacturing done in the country and employs over 80 million people. There is a massive volume of middle and lower middle class population employed in this sector and sustain through it. Despite serious efforts, MSME economy remains to be weak which is why RBI has come up with better credit policies along with a management to influence the flow of credit and improve the condition of the sector.
It is a tried and tested fact that good credit policies are always best for the smooth flow of any kind of economy and MSME is no exception.
Some measures have been instructed by the RBI in order to accomplish the same.
On all auto, retail, micro, small and medium enterprise loans, a cash reserve ratio will be provided to all the banks that will be incremental in nature. The cash must be available for the banks to maintain a loan flow and cater to all the mentioned sectors. There will also be a relief on the cash reserve ratio when loan amounts are availed from January 30 to July 31. This will be done to solely improve the speed of credit flow and make it seamless. Earlier, it had been observed that risk weights that were implied on loans in the retail sector were decreased by the RBI and in the process incentivise the credit flow.
However, the banks are of a different opinion. They have stated that this improve CRR might help in incentivising the credit flow but will mean very little or no transmission. A big public sector bank’s CEO expressed that the transmission will always be limited to up to 20 basis points in result of the recent RBI actions. The small savings must be put under control and restriction in order to have an actual and long lasting impact on the transmission. Opinions also differ in the retail sector where the head of retail of an established SME said that the improved CRR norms might help the cash flow for the banks but there is still confusion about the fact that in what ways it will help the business owners in the MSME sector.
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