Prelims level : Economics Capital Market Mains level : Indian Economy and Issues Relating to Planning, Mobilization of Resources, Growth, Development and Employment
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  •       The Reserve Bank of India (RBI) on January, 2019 set up an expert committee under former SEBI chairman U.K. Sinha to Suggest Long-Term Solutions for the economic and Financial Sustainability of the MSME sector.

Key Recommendations of the Committee:

  •       ₹5,000 crore stressed asset fund for domestic micro, small and medium enterprises (MSMEs) in a relief to small businesses hurt by demonetization, the goods and services tax and an ongoing liquidity crunch.
  •       Such a fund could work in tandem with RBI-mandated restructuring schemes or bank-led NPA revival solutions for MSMEs.
  •       The onus of creating this fund would lie with the government
  •       The committee also suggested forming a government-sponsored Fund of Funds of ₹10,000 crore to support venture capital and private equity firms investing in MSMEs.
  •       The RBI should increase the limit for non-collateralized loans to 20 lakhs.
  •       Revision in loan limit sanctioned under the MUDRA by the Finance Ministry to 20 lakhs from 10 lakhs.
  •       Banks that wish to specialize in MSME lending, their sub-targets for farm loans under the priority sector lender could be waived off, and instead can be given a target for loans to the SME sector.
  •       The targets, committee said, could be of 50% of the net bank credit for universal banks and 80% for small finance banks.
  •       Commercial banks have been suggested that they should develop customised products to assess the financing requirements based on expected cash flows moving away from traditional forms of assessment.
  •       Banks need to build their ability to capture cash flows of MSME borrowers on a regular basis, for which tie-ups with industry majors / aggregators / online platforms will have to be done by the banks
  •       In order to provide loan portability in a seamless manner to MSMEs, the committee recommended that the RBI should come out with measures on portability of MSME loans with a lock-in-period of one year.
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