Contrary to expectations, the RBI, in its Monetary Policy Committee meet last week, retained the repo rate -- or short-term lending rate for commercial banks at 4 percent. The central bank had already cut repo rate by 115 basis points in the last seven months, but given that the Indian economy is still struggling the effects of the COVID-19 crisis and lockdowns taken to limit the spread of the virus, economists and industrialists expected another dose of repo rate cut. But it hasn’t happened.
But the MPC announced a major restructuring package for stressed MSME loans which banks and NBFCs have been strongly pitching for. It extended a scheme whereby stressed MSME borrowers will become eligible for restructuring their debt, provided their accounts with lenders were classified as 'standard' as on March 1, 2020. In other words, the existing loans to MSMEs classified as 'standard' will now be re-structured without a downgrade in the asset classification.
In another welcome move, the central bank has given priority sector lending status to start-ups. This will definitely help our start-ups. Under PSL, RBI directs banks to provide a specified portion of the bank lending to few specific sectors, and now with PSL status given to start-ups, it can be expected that it will be easier for thousands of start-ups functioning in different fields to access timely and adequate bank credit.
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