RBI Panel Suggests Rs 5K cr Distressed Asset Fund for MSMEs

Mumbai, An RBI panel, led by former Sebi Chairman U.K. Sinha, has recommended the creation of a distressed asset fund with a corpus of Rs 5,000 crore for small businesses. It also suggested a government sponsored fund of funds (FoF) to support VC/PE firms investing in the micro, small and medium enterprises (MSMEs) sector to encourage them to invest in the segment.

“The committee recommends for the creation of a distressed asset fund, with a corpus of Rs 5,000 crore, structured to assist units in clusters where a change in the external environment, e.g. a ban on plastics or ‘dumping’, has led to a large number of MSMEs becoming non-performing assets (NPAs).

As per the Reserve Bank of India’s (RBI) extant guidelines issued in 2010, banks are mandated not to seek collateral security for loans up to Rs 10 lakh. Considering the price rise, the expert committee has recommended to revise the collateral free loan limit to Rs 20 lakh. The same should also apply to loans sanctioned under the Pradhan Mantri Mudra Yojana (PMMY) and to Self-help group (SHG) based enterprises.

In order to provide loan portability in a seamless manner to MSMEs, the committee has recommended that RBI should come out with measures on portability of MSME loans with a lock in period of one year and it also considered that there is a case for increasing the exposure limit of Rs 5 crore for Regulatory Retail to at least Rs 7.5 crore, which can benefit a large number of MSMEs.

The committee also recommended that the General Financial Rules (GFR) and Department Procurement Codes, as the case may be, be amended to prohibit placing of purchase orders in excess of the annual budget approved by the legislature/government.(IANS)

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