RBI to Scrap Risk Weight to Make MSME Loans More Palatable

by Gaurav Bansal Company Registration Consultants in Delhi

Recently, the government launched its complex and unfortunately, underwhelming stimulus package of INR 20 Lakh Crore. My apprehensions aside, the government has provided a new form of comfort to RBI during these trying times.

The 20 Lakh Crore stimulus Package brought with it a lot of hope, confusion and frankly, anger. However, as time passes by, things are getting clearer and the matter is getting good. The INR 3 Lakh Crore loan that’s to be provided to the MSMEs to revive their financial conditions comes with several terms and conditions. However, one of them is reduced. There won’t be any risk weight on these loans.

What is Risk Weight?

Risk weight is a certain amount of money that banks have to give to the Reserve bank of India for giving a loan. It’s a capital required to be set aside in case the loan given by the bank turns out to be bad.

However, for the stimulus package, the risk weight has been scrapped. It means that the banks won’t have to pay that to Reserve Bank of India. It further empowers these banks and non-banking financial institutions to lend more loans to the needy MSMEs.

Also read about: MSME registration India online

The current risk weight of loans to MSMEs is 20%.

The intent of this move

As you know, banks are often apprehensive when it comes to providing loans to anyone, especially struggling business. With the risk weight removed, there is a chance that none of the banks will say no to lending money as per the scheme to the MSMEs. Why was the risk weight removed? Simple! The stimulus package introduced by the Modi government was stimulating enough for the RBI to let go of that pesky risk concerns that plague your chance to get a loan from banks.

The Non-collateral loan

As the government is taking full guarantee to repay the loans given by the stimulus package, many are hopeful that the economy will spring back in action. Not all however, are that jazzed about it. Banks have themselves shown their discomfort and have stated that far beyond 15% of the loans can turn bad.

Conclusion

The new move by the RBI is sure to help a lot of MSMEs procure loans from the banks. However, in the end of the day, banks are going to make the decisions whether or not to give out the loans.