Small Industries Now Entitled To More Working Capital Credit 

The Reserve Bank of India has advised banks to provide additional working capital to micro and small industries in the aftermath of the demonetisation. In a notification issued on Thursday, RBI asked banks to consider providing additional credit to small companies till March 31 to help them tide over the cash crunch following the decision to demonetise old Rs 500 and Rs 1,000 notes in November.

In a circular last year, the RBI had urged banks to consider extending additional credits to small and micro industries in the event of unforeseen or seasonal increase in demand of products produced by them.

In light of that circular, the central bank on Thursday said that it received reports of business owners facing difficulties after withdrawal of high-denomination currency notes, which prompted the decision.

Also Read: RBI Extends Repayment Relief Window For Small Borrowers By 30 Days

The new instructions issued to banks advised them to use the above facility to extend more credit to industries in need due to “cash flow mismatches” and clarified that it will be only a one-time measure till March 31.

The cash crunch in the country has had an especially adverse impact on small industries and hit consumer demand. A BloombergQuint report found that small and medium industries in the Thane district in Maharashtra were struggling to secure working capital and pay salaries to employees. Industry experts have pointed out that there will be a downside risk to consumer demand in one or two upcoming quarters.

In its monetary policy statement released earlier this month, the central bank observed that the impact of the demonetisation on the economy will be transitory and transient, with the long-term benefits yet to be assessed.