Credit flow to Micro, Small and Medium Enterprises Sector

Please refer to our circular RPCD.PLNFS.BC.No.63/06.02.31/2006-07 dated April 4, 2007 containing definition of Micro, Small and Medium Enterprises as per Section 7 (I) of the Micro Small and Medium Enterprises Development Act, 2006.

2. In this connection, we inform that Government of India (GoI), vide Gazette Notification S.O. 2119 (E) dated June 26, 2020, has notified new criteria for classifying the enterprises as Micro, Small and Medium enterprises. The new criteria will come into effect from July 1, 2020. The details are as under:

2.1 Classification of enterprises

An enterprise shall be classified as a Micro, Small or Medium enterprise on the basis of the following criteria, namely:

  1. a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;

  2. a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and

  3. a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees

2.2 Composite criteria of investment and turnover for classification

  1. A composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium.

  2. If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.

  3. All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.

2.3 Calculation of investment in plant and machinery or equipment

  1. The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961.

  2. In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.

  3. The expression ‘’plant and machinery or equipment’’ of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings).

  4. The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR.

  5. The cost of certain items specified in the Explanation I to sub-section (1) of section 7 of the Act shall be excluded from the calculation of the amount of investment in plant and machinery.

2.4 Calculation of turnover

  1. Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification.

  2. Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.

  3. The turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory.

2.5 In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration. In case of reverse-graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place. Other aspects relating to registration of enterprises, grievance redressal, etc. are mentioned in the Gazette Notification S.O. 2119 (E) dated June 26, 2020.

3. The above instructions supersedes our earlier guidelines dated April 4, 2007, except paragraph 6 relating to delayed payment to micro and small enterprises.

4. We advise you to initiate necessary action for reclassification of enterprises as per the new definition w.e.f July 1, 2020 and issue necessary instructions to your branches/controlling offices in this regard, at the earliest.

All Non-Banking Finance Companies (NBFCs)

Madam/ Dear Sir,

Extension of timeline for finalization of audited accounts

Please refer to para 18(2) of the Master Direction on Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 and Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016, as per which every applicable NBFC shall finalise its balance sheet within a period of 3 months from the date to which it pertains.

2. In view of the on-going situation and taking in to account the feedback received from various stakeholders, it has been decided that every applicable NBFC shall finalise its balance sheet within a period of 3 months from the date to which it pertains or any date as notified by SEBI for submission of financial results by listed entities.

The Reserve Bank of India (RBI) has announced set of nine measures to smoothen the flow of finance and preserve financial stability. This follows the earlier sets of measures announced by RBI on 27 March 2020 and 17 April 2020.

Repo rate reduced by 40 basis points

  • The repo rate has been reduced by 40 basis points from 4.4% to 4.0%. The Marginal Standing Facility rate and the Bank rate have been reduced from 4.65% to 4.25%. The reverse repo rate has been reduced from 3.75% to 3.35%.

Refinance Facility to SIDBI extended for another 90 days

  • RBI had announced a special refinance facility of ¹15,000 crore to SIDBI at RBI s policy repo rate for a period of 90 days. This facility has now been extended by another 90 days.

Relaxation of Rules for Foreign Portfolio Investment under Voluntary Retention Route

  • The rules stipulate that at least 75% of the allotted investment limit be invested within three months; considering the difficulties being faced by investors and their custodians, the time limit has now been revised to six months.

Exporters can now Avail Bank Loans for Higher Period

  • The maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks to exporters has been increased from the existing one year to 15 months, for disbursements made up to July 31, 2020.

Loan facility to EXIM Bank

  • Announced a line of credit of ¹15,000 crore to the EXIM Bank, for financing, facilitating and promoting India s foreign trade. The loan facility has been given for a period of 90 days, with a provision to extend it by one year. 

More time for Importers to Pay for Imports

  • The time period for import payments against normal imports (i.e. excluding import of gold / diamonds and precious stones / jewelry) into India has been extended from six months to twelve months from the date of shipment. This will be applicable for imports made on or before 31 July 2020.

Extension of Regulatory Measures by another 3 Months

  • Extended the applicability of certain regulatory measures announced earlier, by another three months from 1 June 2020 till 31 August 2020. These measures will now be applicable for a total period of six months (1 March 2020 to 31 August 2020). The regulatory measures are: (a) 3 month moratorium on term loan instalments; (b) 3 month deferment of interest on working capital facilities; (c) easing of working capital financing requirements by reducing margins or reassessment of working capital cycle; (d) exemption from being classified as defaulter in supervisory reporting and reporting to credit information companies; (e) extension of resolution timelines for stressed assets; and (f) asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions. 

Provision to convert Interest on Working Capital into Interest Term Loan

  • Lending institutions have been allowed to convert the accumulated interest on working capital facilities over the total deferment period of 6 months (1 March 2020 up to 31 August 2020) into a funded interest term loan, to be fully repaid during the course of the current financial year, ending 31 March 2021.

Increase of Group Exposure Limit to Increase Fund Flow to Corporates

  • The maximum credit which banks can extend to a particular corporate group has been increased from 25% to 30% of the bank s eligible capital base. The increased limit will be applicable up to 30 June 2021.

States allowed to borrow more from Consolidated Sinking Fund

  • The Consolidated Sinking Fund is being maintained by state governments as a buffer for repayment of their liabilities. The rules governing withdrawal from this Fund have now been relaxed, in order to enable states to enable them to repay their borrowings from the market, which become due in 2020-21. The change in withdrawal norms will come into force with immediate effect and will remain valid till 31 March 2021. 

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RBI has increased the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from the existing one year to 15 months, for disbursements made up to 31 July 2020. To provide better flexibility to importers in managing operating cycles in a COVID-19 environment, RBI has extended the period for completion of remittances against normal imports (except in cases where amounts are withheld towards guarantee of performance) from 6 months to 12 months from the date of shipment for imports made on or before 31 July 2020

https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR239281035C0C72F5477589233CDB3AFDE29E.PDF

This Statement sets out various developmental and regulatory policy measures to improve the functioning of markets and market participants; measures to support exports and imports; efforts to further ease financial stress caused by COVID-19 disruptions by providing relief on debt servicing and improving access to working capital; and steps to ease financial constraints faced by state governments.

I. Measures to Improve the Functioning of Markets

These measures are intended to ease constraints on market participants and channel liquidity to various sectors of the economy that are impacted by COVID-19 related dislocations.

1. Refinancing Facility for Small Industries Development Bank of India (SIDBI)

The Small Industries Development Bank of India (SIDBI) plays an important role in meeting the long-term funding requirements of small industries. In view of the tightening of financial conditions in the wake of the COVID-19 pandemic, and difficulties in raising resources from the market, the RBI had announced a special refinance facility of ₹15,000 crore to SIDBI for on-lending/refinancing. Advances under this facility were provided at the RBI’s policy repo rate at the time of availment for a period of 90 days. In order to provide greater flexibility to SIDBI in its operations, it has been decided to roll over the facility at the end of the 90th day for another period of 90 days.

2. Investments by Foreign Portfolio Investors (FPIs) under the Voluntary Retention Route (VRR)

The regulatory framework for FPI investment in debt has evolved over the years in line with the policy objective of encouraging such flows within the prevailing macro-prudential framework. The Voluntary Retention Route (VRR) introduced in March 2019 facilitates long term and stable FPI investment in debt and offers operational flexibility in terms of instrument choices and exemptions from certain regulatory requirements. Since its introduction, the VRR scheme has evinced strong investor participation, with investments exceeding 90 per cent of the limits allotted under the scheme. In view of difficulties expressed by FPIs and their custodians on account of COVID-19 related disruptions in adhering to the condition that at least 75 per cent of allotted limits be invested within three months, it has been decided that an additional three months will be allowed to FPIs to fulfil this requirement. Detailed guidelines are being issued separately.

II. Measures to Support Exports and Imports

The deepening of the contraction in global activity and trade, which has become accentuated by the outbreak of COVID-19 and its rapid spread, has crippled external demand. In turn, this has impacted India’s exports and imports both of which have contracted sharply in recent months. In view of the importance of exports in earning foreign exchange and in providing income and employment; and of imports in bringing in essential requirements of raw materials, intermediates, finished goods and technology, measures are being taken to support the foreign trade sector.

3. Export Credit

Exporters have been facing genuine difficulties such as delay/ postponement of orders and delay in realisation of bills, which are adversely affecting their production and realisation cycles. It is in this context that the RBI permitted an increase in the period of realization and repatriation of export proceeds to India from nine months to 15 months from the date of export in respect of exports made up to or on July 31, 2020. It has now been decided to increase the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from the existing one year to 15 months, for disbursements made up to July 31, 2020.

4. Liquidity Facility for Exim Bank of India

The Export-Import Bank of India provides financial assistance to exporters and importers with a view to promoting the country’s international trade. In view of the COVID-19 pandemic, however, global trade has contracted sharply and global financial markets have turned highly volatile and risk averse, especially to EMEs. As Exim Bank predominantly relies on foreign currency resources raised from international financial markets for its operations, it is facing challenges to raise funds in international debt capital markets. Accordingly, it has been decided to extend a line of credit of ₹15,000 crore to the EXIM Bank for a period of 90 days from the date of availment with rollover up to a maximum period of one year so as to enable it to avail a US dollar swap facility to meet its foreign exchange requirements.

5. Extension of Time for Payment for Imports

COVID-19 related disruptions to cross-border trade have imposed slowdown in manufacturing/sale of finished products, and delay in realisation of sale proceeds, both domestically and overseas. In turn, this has elongated the operating cycle for business entities. In this situation, units find it difficult to pay for their imports within the time stipulated under the Foreign Exchange Management Act (FEMA). At present, remittances for normal imports (excluding import of gold/diamonds and precious stones/jewellery) into India are required to be completed within a period of six months from the date of shipment by the overseas supplier, except in cases where amounts are withheld towards guarantee of performance. It has been decided to extend the time period for completion of remittances against normal imports into India (except in cases where amounts are withheld towards guarantee of performance) from six months to twelve months from the date of shipment for such imports made on or before July 31, 2020. The measure will provide greater flexibility to importers in managing their operating cycles in a COVID-19 environment.

III. Measures to Ease Financial Stress

The intensification of COVID-19 disruptions has imparted priority to relaxing repayment pressures and improving access to working capital by mitigating the burden of debt servicing, prevent the transmission of financial stress to the real economy, and ensure the continuity of viable businesses and households.

6. Moratorium on Term Loan Instalments

On March 27, 2020, the RBI permitted all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (referred to hereafter as “lending institutions”) to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020. In view of the extension of the lockdown and continuing disruptions on account of COVID-19, it has been decided to permit lending institutions to extend the moratorium on term loan instalments by another three months, i.e., from June 1, 2020 to August 31, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by another three months.

7. Deferment of Interest on Working Capital Facilities

In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of another three months, from June1, 2020 to August 31, 2020, in addition to the three months allowed on March 27, 2020 on payment of interest in respect of all such facilities outstanding as on March 1, 2020.

8. Payment of Interest on Working Capital Facilities for the Deferment Period

In order to ameliorate the difficulties faced by borrowers in repaying the accumulated interest for the deferment period on working capital facilities in one shot, lending institutions are permitted to convert the accumulated interest on working capital facilities over the deferment period (up to August 31, 2020) into a funded interest term loan which shall be repayable not later than the end of the current financial year (i.e., March 31, 2021).

Lending institutions may, accordingly, put in place a Board approved policy to implement the measures announced in para 6, 7, 8.

9. Asset Classification

(i) As the moratorium/deferment is being provided specifically to enable borrowers to tide over COVID-19 disruptions, the same will not be treated as changes in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade.

(ii) As earlier, the rescheduling of payments on account of the moratorium/deferment will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions in pursuance of the announcements made today do not adversely impact the credit history of the borrowers.

(iii) In respect of all accounts for which lending institutions decide to grant moratorium/deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall also exclude the extended moratorium/deferment period. Consequently, there would be an asset classification standstill for all such accounts during the moratorium/deferment period from March 1, 2020 to August 31, 2020. Thereafter, the normal ageing norms shall apply.

(iv) NBFCs, which are required to comply with Indian Accounting Standards (IndAS), may follow the guidelines duly approved by their Boards and advisories of the Institute of Chartered Accountants of India (ICAI) in recognition of impairments. Thus, NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers.

10. Easing of Working Capital Financing

(i) In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are permitted to recalculate the ‘drawing power’ by reducing the margins till the extended period, i.e., August 31, 2020. In order to smoothen the impact for the borrowers, lending institutions are permitted to restore the margins to the original levels by March 31, 2021.

(ii) Further, lending institutions are permitted to reassess the working capital cycle of a borrowing entity up to an extended period till March 31, 2021. This will provide necessary leeway to the lenders to make an informed assessment about the impact of the pandemic on the entity concerned.

(iii) Such changes in credit terms permitted to the borrowers to specifically tide over COVID-19’s fallout will not be treated as concessions granted due to financial difficulty of the borrower, under Paragraph 2 of the Annex to the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated June 7, 2019 (‘Prudential Framework’), and consequently, will not result in asset classification downgrade.

11. Extension of Resolution Timeline

Under the Prudential Framework, lending institutions are required to hold an additional provision of 20 per cent in the case of large accounts under default if a resolution plan has not been implemented within 210 days from the date of such default. Given the continuing challenges to resolution of stressed assets, lending institutions are permitted to exclude the entire moratorium/deferment period from March 1, 2020 to August 31, 2020 from the calculation of 30-day Review Period or 180-day Resolution Period, if the Review/Resolution Period had not expired as on March 1, 2020.

12. Limit on Group Exposures under the Large Exposures Framework

Under the extant guidelines on the Large Exposures Framework, the exposure of a bank to a group of connected counterparties shall not be higher than 25 percent of the bank’s eligible capital base at all times. On account of the COVID-19 pandemic, debt markets and other capital market segments are witnessing heightened uncertainty. As a result, many corporates are finding it difficult to raise funds from the capital market and are predominantly dependent on funding from banks. With a view to facilitating the flow of resources to corporates, it has been decided, as a one-time measure, to increase a bank’s exposure to a group of connected counterparties from 25 per cent to 30 per cent of the eligible capital base of the bank. The increased limit will be applicable up to June 30, 2021.

IV. Debt Management

13. Consolidated Sinking Fund (CSF) of State Governments – Relaxation of Guidelines

State Governments maintain a Consolidated Sinking Fund (CSF) with the Reserve Bank as a buffer for repayment of their liabilities. In the light of the Covid-19 pandemic and the consequent stress on State Government finances, the RBI has reviewed the Scheme and has decided to relax the rules governing withdrawal from the CSF, while at the same time ensuring that depletion of the Fund balance is done prudently. This will enable States to meet a larger proportion of their redemption of market borrowings falling due in the current financial year from the CSF. These relaxations to states will release an additional amount of about ₹13,300 crore. Together with the normally permissible withdrawal, this measure will enable the states to meet about 45 per cent of their redemptions due in 2020-21 through withdrawal from CSF. This change in withdrawal norms will come into force with immediate effect and will remain valid till March 31, 2021.

In response to COVID-19, the requirement of fiscal resources has increased with likely implications for market conditions going forward. The RBI shall remain watchful and support the smooth completion of the borrowing programme of the Centre and States in the least disruptive manner.

RBI sold $500 million in NDF market to keep rupee stable
The Reserve Bank of India (RBI) sold a net $500 million in the overseas currency-derivatives market in March, the biggest such intervention in at least a year, to ensure that the rupee remained stable amid a coordinated capital flight to safe havens from the emerging markets.

Read more at-

https://economictimes.indiatimes.com/markets/forex/rbi-sold-500-million-in-ndf-market-to-keep-rupee-stable/articleshow/75525916.cms  

    Submission of regulatory returns – Extension of timelines

    In order to mitigate the difficulties in timely submission of various regulatory returns, in view of disruptions on account of COVID-19 pandemic, it has been decided to extend the timelines for their submission.

    2. Accordingly, all regulatory returns required to be submitted by the above entities to the Department of Regulation can be submitted with a delay of upto 30 days from the due date. The extension will be applicable to regulatory returns required to be submitted upto June 30, 2020. Further details are furnished in the Annex. Those entities that are in a position to submit the returns earlier may continue to do so.

    3. It may be noted that no extension in timeline is permitted for submission of statutory returns i.e. returns prescribed under the Banking Regulation Act, 1949, RBI Act, 1934 or any other Act (for instance, returns related to CRR/SLR).

    4. Further, all communication to the Department of Regulation should be through corporate e-mail to the extent possible (i.e., without involving physical movement of papers). This arrangement shall continue till further notice.

     

    Annex  List of regulatory returns which can be submitted with a delay of a maximum of 30 days from the due date

    read more

    https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11882&Mode=0

    The COVID-19 pandemic and the related dislocation in normal economic activity has severely affected the economically weaker sections of the society and their means of livelihood. To help the people affected by any kind of emergency or distress situation, like the one posed by the COVID-19 pandemic, Government of India has set up a public charitable trust named Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) to receive contributions from various sources.

    Responding to the call to support this noble cause, the employees of the Reserve Bank have decided to contribute one or more days salary to the PM CARES Fund. The total contribution from the employees amounting to ₹7.30 crore is being remitted to the PM CARES Fund.

    RBI (Master Circular – Know Your Customer Guidelines)

    The Master Direction on KYC dated February 25, 2016, is hereby updated to reflect the following changes in line with Rule 9(13) of the PML Rules 2005: 
    • A new section (5A) has been added to chapter II of the MD on KYC requiring REs to carry out ‘Money Laundering (ML) and Terrorist Financing (TF) Risk Assessment’ exercise periodically to identify, assess and take effective measures to mitigate its money
    laundering and terrorist financing risk for clients, countries or geographic areas, products, services, transactions or delivery channels, etc. While assessing the ML/TF risk, the REs
    are required to take cognizance of the overall sector-specific vulnerabilities, if any, that  the regulator/supervisor may share with REs from time to time. Further, the internal risk assessment carried out by the RE should be commensurate to its size, geographical presence, complexity of activities/structure, etc.
    Also, the REs shall apply a Risk Based Approach (RBA) for mitigation and management of the identified risk and should have Board approved policies, controls and procedures in this regard. 
    2. The above instructions shall come into force with immediate effect. It may be noted that the first such internal risk assessment by the REs should be completed by June 30, 2020 and thereafter
    reviewed periodically

     

    Subject: Review of Foreign Direct Investment (FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic

    The Government of India has reviewed the extant FDI policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic and amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017
    as under:

    1. Present Position
    Para 3.1.1: A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an  entity incorporated in Bangladesh can invest only under the Government route. Further,
    a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

    2. Revised Position

    Para 3.1.1:
    3.1.1(a) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India
    is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment. Page 1 of 2  
    3.1.1(b) In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 3.1.1(a), such subsequent change in beneficial ownership
    will also require Government approval. 

    3. The above decision will take effect from the date of FEMA notification