RBI policy: GST-hit small business get more time, money.

MUMBAI: The RBI's policy has twin benefits for the micro, small and medium enterprises (MSMEs) segment. The central bank has allowed lenders to give defaulters more time to repay and has at the same time removed limits on loans to this segment.

Also, foreign banks with a branch network of over 20 — which include the likes of StanChart, Citibank and HSBC — will have to lend to the farm and micro enterprises segment to meet their priority sector obligations.

The central bank said that this was aimed at encouraging small businesses transition into a formalised business environment and overcome the disruption caused by the goods and services tax (GST). The RBI has relaxed rules for GST-registered MSMEs which had not defaulted until August 2017, but who were overdue as on September 1, 2017. For these businesses, banks and finance companies have been asked to allow payments due between September 1, 2017 and January 31, 2018 within 180 days from their original due date.

Also, the current loan limits of Rs 5 crore (for micro) and Rs 10 crore (for SMEs) have been removed.

Bank of India MD & CEO Dinabandhu Mohapatra said, "The forbearance given to MSMEs below an exposure level of Rs 25 crore is a welcome development. This supplements the favourable tax treatment accorded to this segment in the Union Budget. MSMEs contribute 31% to the GDP and are the largest employment generators."

Removal of the caps will particularly help those banks that were struggling to meet their priority sector obligations. With larger loans to the MSME segment, these lenders can increase their priority sector loans and be spared from investing in the Rural Infrastructure Development Fund, which yields a very low rate of return.

On the priority sector targets for foreign banks, the central bank said that the sub-target of 8% of bank credit or credit-equivalent amount of off-balancesheet exposure (CEOBE), whichever is higher, will be made applicable for lending to small and marginal farmers for foreign banks with 20 branches and above from FY 2018-19.

"Further, the sub-target for bank lending to micro enterprises in the country of 7.50% of net bank credit or CEOBE, whichever is higher, will also be made applicable for foreign banks with 20 branches and above from FY 2018-19," the RBI said.

To encourage cashless transactions, the central bank has withdrawn the incentives it hitherto provided for banks to install ATMs and cash deposit machines.