Banks can deduct loans to new MSME borrowers from NDTL for CRR purpose, says RBI

The Reserve Bank of India (RBI) on Friday allowed banks to deduct loans disbursed to new micro, small, and medium enterprise (MSME) borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR).

“In order to incentivise new credit flow to MSME borrowers, scheduled commercial banks will be allowed to deduct credit disbursed to 'new MSME borrowers' from their net demand and time liabilities for calculation of the cash reserve ratio,” RBI said in its Statement on Developmental and Regulatory Policies, announced earlier in the day.

The central bank said for this exemption, "new MSME borrowers" are defined as those MSME borrowers who have not availed any credit facilities from the banking system as on January 1, 2021.

It said the exemption will be available only for exposures up to Rs 25 lakh per borrower for credit extended up to the fortnight ending October 1, 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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This announcement comes a few days after Finance Minister Nirmala Sitharaman presented a much awaited Union Budget on February 1. She said the government's Aatmanirbhar packages, which totalled Rs 27.1 lakh crore to deal with the COVID-19 pandemic, accelerated the pace of structural reforms.

Furthermore, the minister allocated Rs 15,700 crore — double that of last year — to the MSME sector, besides laying a special framework of data analytics, machine learning, and artificial intelligence to assist the sector. To boost digital transactions, Sitharaman earmarked Rs 1,500 crore for a proposed scheme to provide financial incentives to promote digital modes of payment among MSMEs.

MSMEs welcomed the Budget announcements including the customs duties in a bid to boost local manufacturing.