RBI asks banks to link retail and MSME loans to external benchmark from 1 Oct - Pragnya IAS Academy - News Analysis.

RBI asks banks to link retail and MSME loans to external benchmark from 1 Oct.

• RBI makes it mandatory for banks to link all new floating-rate loans for housing, auto and MSEs to repo
• Interest rate under external benchmark, like repo, should be reset at least once in 3 months, said RBI
In order to improve transmission of interest rates, the Reserve Bank of India (RBI) on Wednesday asked banks to link their lending rates on floating rate loans to retail, personal and micro, small and medium enterprises (MSME) borrowers to an external benchmark from 1 October.

However, banks can link loans to other segments of borrowers as well, RBI said.
To be sure, banks have already started linking their lending rates to an external benchmark. Among these are public sector lender State Bank of India, Union Bank of India, Central Bank of India, Punjab National Bank and private sector lender Federal Bank. Other banks mostly price loans under the marginal cost of funds-based lending rate (MCLR).
The central bank said, in a statement on Wednesday, that the transmission of policy rate changes to the lending rate of banks under the current MCLR framework has not been satisfactory.
Banks have been allowed to choose between RBI’s repo rate, government of India’s three-month treasury bill yield published by the Financial Benchmarks India Private Ltd (FBIL), government’s six-month treasury bill yield published by the FBIL or any other benchmark market interest rate published by the FBIL.
However, a bank will have to adopt a uniform external benchmark within a loan category, meaning that the adoption of multiple benchmarks by the same bank is not allowed within a loan category.
While lenders can decide on the spread they charge over the benchmark to calculate the final interest rate, RBI said that the spread can be changed only if the credit assessment of the borrower undergoes a substantial change. The interest rate under external benchmark shall be reset at least once in three months, RBI said. (Source: The Hindu)


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RBI asks banks to link retail and MSME loans to external benchmark from 1 Oct.

RBI’s solution for MSME loan woes: Public credit registry - Pragnya IAS Academy - News Analysis.

RBI’s solution for MSME loan woes: Public credit registry.

The RBI is preparing a public credit registry, which will help reduce interest rates for borrowers due to easier risk assessment: RBI deputy governor Viral Acharya.

The Reserve Bank of India (RBI) preferred fundamental changes to smoothen loan flow to micro-businesses through a public credit registry, rather than doling out forbearances, deputy governor Viral Acharya said on Saturday.

The statement comes almost a month after the central board “advised” the monetary authority to consider a restructuring scheme for loans up to Rs 25 crore for stressed standard assets of borrowers from the micro, small and medium enterprise sector.
The advisory was issued amid pressure from the government to do more to support small businesses, which had been hit by the twin shocks of demonetisation and GST.
The government had also pitched for easing the prompt corrective action norms, under which the RBI had placed 11 of the 21 state-run banks, to help banks to lend more.
“At the RBI, we are quite excited about how we can solve the credit problems at the grassroots for micro entrepreneurs in a fundamental way rather than saying that when they default we will just give them forbearance and give them another six or nine months to pay up,” he said while addressing IIT-Bombay’s annual Techfest.
Acharya, an alumni of the engineering institute, said the RBI was putting together a public credit registry that will give banks the entire profile, including past loan details, and also regular income flows of borrowers. This can make a lender more confident and also reduce the rate of interest for a borrower as the risk assessment becomes easier, according to Acharya.
When asked about privacy concerns of such a registry, Acharya admitted it was a “delicate” matter and advocated an access rights design upfront rather than a lot of information being gathered by companies. The deputy governor also said in most countries with public credit registries, there existed a separate legislative framework focussing on critical aspects, including access rights.
“We’ve not yet fully engaged with the government to get such a legislation through because the RBI already has certain rights under existing legislations,” he said.
Work on the registry was happening in a “modular” manner and would take three-five years before every financial transaction is recorded, he said.
Acharya said there was need to judiciously allocate finance to entrepreneurs rather than just giving away money. He also said there was an urgent need to focus more on skilling, since it was a very important determinant for growth. (Source: Livemint)


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RBI’s solution for MSME loan woes: Public credit registry.

PM launches historic Support and Outreach Initiative for MSME Sector - Pragnya IAS Academy - News Analysis.

PM launches historic Support and Outreach Initiative for MSME Sector.

• PM unveils 12 key initiatives
•59 minute loan portal to enable easy access to credit for MSMEs
•Mandatory 25 percent procurement from MSMEs by CPSEs
•Ordinance for simplifying procedures for minor offences under Companies Act
The Prime Minister, Shri Narendra Modi, today launched a historic support and outreach programme for the Micro, Small and Medium Enterprises (MSME) sector. As part of this programme, the Prime Minister unveiled 12 key initiatives which will help the growth, expansion and facilitation of MSMEs across the country.

The Prime Minister said that the 12 decisions that he is announcing today, will mark a new chapter for the MSME sector. Noting that MSMEs are one of the principal employment generators in India, the Prime Minister recalled the glorious Indian traditions of small scale industry, including Ludhiana’s hosiery, and Varanasi’s sarees.
The Prime Minister said that the success of economic reforms launched by the Union Government, can be gauged from the rise in India's “Ease of Doing Business Rankings,” from 142 to 77 in four years.
The Prime Minister said that there are five key aspects for facilitating the MSME sector. These include access to credit, access to market, technology upgradation, ease of doing business, and a sense of security for employees. He said that as a Diwali gift for the sector, the 12 announcements he is making, will address each of these five categories.
Access to Credit
As the first announcement, the Prime Minister announced the launch of the 59 minute loan portal to enable easy access to credit for MSMEs. He said that loans upto Rs. 1 crore can be granted in-principle approval through this portal, in just 59 minutes. He said a link to this portal will be made available through the GST portal. The Prime Minister asserted that in New India, no one should be compelled to visit a bank branch repeatedly.
The Prime Minister mentioned the second announcement as a 2 percent interest subvention for all GST registered MSMEs, on fresh or incremental loans. For exporters who receive loans in the pre-shipment and post-shipment period, the Prime Minister announced an increase in interest rebate from 3 percent to 5 percent.
The third announcement made by the Prime Minister was that all companies with a turnover more than Rs. 500 crore, must now compulsorily be brought on the Trade Receivables e-Discounting System (TReDS). He said that joining this portal will enable entrepreneurs to access credit from banks, based on their upcoming receivables. This will resolve their problems of cash cycle.
Access to Markets
The Prime Minister said that on access to markets for entrepreneurs, the Union Government has taken a number of steps already. In this context, he made his fourth announcement, that public sector companies have now been asked to compulsorily procure 25 percent, instead of 20 percent of their total purchases, from MSMEs.
The Prime Minister said his fifth announcement is related to women entrepreneurs. He said that out of the 25 percent procurement mandated from MSMEs, 3 percent must now be reserved for women entrepreneurs.
The Prime Minister said that more than 1.5 lakh suppliers have now registered with GeM, out of which 40,000 are MSMEs. He said transactions worth more than Rs. 14,000 crore have been made so far through GeM. He said the sixth announcement is that all public sector undertakings of the Union Government must now compulsorily be a part of GeM. He said they should also get all their vendors registered on GeM.
Technology Upgradation
Coming to technological upgradation, the Prime Minister said that tool rooms across the country are a vital part of product design. His seventh announcement was that 20 hubs will be formed across the country, and 100 spokes in the form of tool rooms will be established.
Ease of Doing Business
On Ease of Doing Business, the Prime Minister said his eighth announcement is related to pharma companies. He said clusters will be formed of pharma MSMEs. He said 70 percent cost of establishing these clusters will be borne by the Union Government.
The Prime Minister said that the ninth announcement is on simplification of government procedures. He said the ninth announcement is that the return under 8 labour laws and 10 Union regulations must now be filed only once a year.
The Prime Minister said that the tenth announcement is that now the establishments to be visited by an Inspector will be decided through a computerised random allotment.
The Prime Minister noted that as part of establishing a unit, an entrepreneur needs two clearances namely, environmental clearance and consent to establish. He said that the eleventh announcement is that under air pollution and water pollution laws, now both these have been merged as a single consent. He further said that the return will be accepted through self-certification.
As the twelfth announcement, the Prime Minister mentioned that an Ordinance has been brought, under which, for minor violations under the Companies Act, the entrepreneur will no longer have to approach the Courts, but can correct them through simple procedures.
Social Security for MSME Sector Employees
The Prime Minister also spoke of social security for the MSME sector employees. He said that a mission will be launched to ensure that they have Jan Dhan Accounts, provident fund and insurance.
The Prime Minister said that these decisions would go a long way in strengthening the MSME sector in India. He said the implementation of this outreach programme will be intensively monitored over the next 100 days.
The Union Minisyter of Finance and CorporateAffairs, Shri Arun Jaitley, Union Minister of State (I/C) for MSME, Shri Giriraj Singh, MOS(Finance) Shri Shiv Pratap Shukla, MOS(Finance & Shipping), Shri Pon. Radhakrishnan, Secretary, DFS, Shri Rajiv Kumar, Secretary, MSME, Shri Panda and senior officials of different Departments/Ministries, Banks and Financial Institutions were also present on the occasion.


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PM launches historic Support and Outreach Initiative for MSME Sector.