RBI’s New Monetary Policy: What is in it for the MSMEs

RBI’s decision to incentivize the commercial banks will encourage lending of idle CRR funds to MSMEs resulting in receiving loans easily.


To revive the growth of Micro, Small and Medium Enterprises (MSMEs) in 2021, the Reserve Bank of India’s recent monetary policy has acted as a safety net to ensure liquidity in the MSME sector, by easing the credit flow. 

What is RBI’s new monetary policy for MSMEs? 

RBI’s new monetary policy includes measures to support the MSME sector by allowing the scheduled commercial banks to deduct credit disbursed to new MSME borrowers from their Net Demand and Time Liabilities (NDTL) for calculation of Cash Reserve Ratio (CRR). 

The definition of new MSME borrowers are those borrowers who have not taken any credit facilities from the banks as of 1st January 2021. This exemption will apply to the MSME borrower who has borrowed up to Rs 25 lakh for the credit extended up to the fortnight ending 1st October 2021, for a period of one year from the date of origination of the loan or the tenure of the loan, whichever is earlier.

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The current year's government spends in the budget emphasizes three sectors i.e., infrastructure, healthcare, and development of financial institutions for infrastructure that will help revive the MSME.

What new monetary policy has in it for the MSMEs? 

60 per cent of the startups battled to sustain the business operations and 12 per cent of them had to shut operations as per FICCI, during the pandemic. RBI’s new move to ease the credit flow will benefit the MSMEs as they will have greater access to formal financial banking credit for fulfilling their financial requirement.   

RBI’s decision to incentivize the commercial banks will encourage lending of idle CRR funds to MSMEs resulting in receiving loans easily. It also presents an opportunity for the banks to earn more. This gives a new lease of life, as liquidity in MSMEs is not adequate to pay for the loans taken for purchasing machinery. 

Working on the similar sidelines, the Ministry of MSME Nitin Gadkari is aspiring to increase the contribution of the MSMEs share in the GDP up to 40 per cent that is currently at 30 per cent. 

The current year’s government spends in the budget emphasizes three sectors i.e., infrastructure, healthcare, and development of financial institutions for infrastructure that will help revive the MSME. Apart from the monetary policy, the Indian government has set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to strengthen the credit delivery system that will facilitate the flow of credit to the MSME sector. The credit guarantee under (CGTMSE) will compensate for the loss incurred by a medium scale or small-scale business owner if it fails to discharge its liabilities to the lender.

Shalmoli Sarkar
Shalmoli Sarkar
An MBA in marketing and a BTech in chemical engineering, Shalmoli writes on marketing strategies and business technology for new and aspiring entrepreneurs.

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