RBI’s Liquidity Boost: Key Takeaways For MSMEs

With the COVID-19 second wave hitting hard, the country's economic recovery has gone for a toss. During these difficult times, the Reserve Bank of India (RBI) has come to the rescue for several industries, aiming to mitigate the financial pressures, especially for the MSME sector,  which has been struggling due to the unforeseen spike in healthcare expenses. In an effort to provide relief to the MSME sector, the RBI has announced a Term Liquidity Facility of Rs 50,000 crores with a tenure of up to 3 years, at the repo rate to provide easy access to credit for emergency health services. Following this, banks are required to facilitate the new lending support, categorised as priority sector till repayment or maturity, to entities such as hospitals/dispensaries, vaccine manufacturers, importers/suppliers of vaccines and medical devices, oxygen and ventilators manufacturers/suppliers, and testing labs. Besides, as stated by the RBI, to restore livelihoods, MSME borrowers and individuals impacted by the pandemic can avail other schemes for credit relief.

Support Extended To MSMEs

Identifying  the financial challenges faced by different small businesses, RBI’s relaxation in policies and schemes is expected to  support MSMEs amidst the pandemic. To start with, RBI has made provisions for banks to advance loans to small businesses, along with restructuring the loans to intensify liquidity to curb the crisis. Secondly, for the stressed assets of small businesses and MSMEs impacted by the pandemic, RBI has announced a Resolution Framework 2.0 to bring back livelihood to normalcy. 

Special Credit Allowances

To further support MSMEs and small businesses impacted by the second wave of the pandemic, the RBI is all set to conduct special 3-year long-term repo operations of Rs 10,000 crores at the repo rate for Small Finance Banks till 31 October 2021. These banks will deploy the allotted funds for new lendings, up to Rs 10 lakh/borrower. As a solution to the MFIs' emergent liquidity status, SFBs (Small Finance Banks) will now consider fresh lending to smaller MFIs (Microfinance Institutions), having Rs 500 crore as their asset size, for on-lending to individual borrowers as priority sector lending till 31 March 2022.

Who Can Avail? 

Since the 2nd wave of the pandemic has put borrowers in a very vulnerable state, the RBI has decided that the businesses with a total exposure of Rs 25 crores will be eligible for the recent restructuring framework that was proposed (provided they have loans listed as standard assets and don't have any previous restructuring frameworks availed as of 31 March 2021). Similarly, small businesses and individual borrowers who have availed restructuring under Resolution Framework 1.0 already have been allowed to revise plans, including extending the period of the moratorium, as well as the residual tenure up to 2 years. Nonetheless, the ones that have restructured earlier can now avail a one-time measure to reassess their sanctioned limits as per their working capital cycle and margins.


Steps taken by the RBI to secure liquidity and provide support to small business and MSMEs was the need of the hour. The latest relaxations will essentially help the MSME sector that was more vulnerable to the second wave of the pandemic.