Finance Minister Nirmala Sitharaman on Friday praised the Reserve Bank of India (RBI) for easing cash reserve rules in its bid to promote lending to the Micro, Small and Medium Enterprises (MSME) sector. "I am grateful and happy... the Reserve Bank of India is in lockstep with the government," Nirmala Sitharaman said at a media briefing in Mumbai after post-Budget discussions with economists, tax experts, policymakers as well as industry representatives among other stakeholders. Her remarks came a day after the central bank allowed banks to do away with the need to set aside extra cash reserves to small businesses as well as the automobile and housing sectors in its sixth Monetary Policy Review of current fiscal year.
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"The way in which RBI has come to be very clear on being supportive of the MSMEs is something which is need of the hour," the Finance Minister said.
Tweaking its cash reserve ratio (CRR) norms to promote credit growth in the MSME as well as the auto and home segments, the RBI sought to boost credit growth at a time when the economy is staring at the worst pace of expansion in more than 11 years.
According to the latest rules laid out by the RBI, banks will get exemption in the cash reserve ratio over incremental lending to individuals and to MSMEs till July. Currently, banks are required to mandatorily park 4 per cent of their total deposits with the RBI.
Observing that the MSME sector plays an important role in the growth of the economy, the RBI also extended the restructuring accounts for borrowers by one year to March 31, 2021.
"I am glad that Reserve Bank has been dynamic enough to support MSMEs they have given a very exhaustive thinking about this and responded in a timely fashion," Ms Sitharaman said.
In her second Union Budget, which was presented in Parliament last week, Ms Sitharaman proposed to raise by five times the turnover threshold for audit from the existing Rs 1 crore to Rs 5 crore, with an aim to to reduce the compliance burden on the small retailers, traders and shopkeepers that are part of the MSME sector.
However, the increased limit will apply only to those businesses which carry out less than five per cent of their business transactions in cash, the Finance Minister said in her Budget speech.
