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The Reserve Bank of India has asked banks to throw a line to micro and small enterprises (MSEs), whereby they can get additional working capital limit to overcome the difficulties arising out of cash flow mismatches following withdrawal of legal tender status of Specified Bank Notes (SBN) of ₹500 and ₹1,000 denominations.
The central bank said this would be a one-time measure up to March 31, 2017, and should thereafter be normalised in the fresh working capital assessment cycle.
In its August 2015 circular on ‘Streamlining flow of credit to MSEs for facilitating timely and adequate credit flow during their Life Cycle’, the RBI had advised banks to incorporate with their boards’ approval, in their lending policy to MSEs, a clause for fixing a separate additional limit, at the time of sanction/ renewal of working capital limits.
This additional limit was specifically for meeting the temporary increase in working capital requirements arising mainly from unforeseen/ seasonal increase in demand for products produced by them. Banks have since confirmed to having put such a policy in place.
According to the RBI, MSEs are more prone to facing financial difficulties during their life cycle than large enterprises/ corporates when business conditions turn adverse. Absence of timely support at such a juncture could lead to the unit turning sick and often, irreversibly.
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