After extension of the Emergency Credit Line Guarantee Scheme (ECLGS) for the stressed companies by the government, the RBI is also planning to announce steps to provide additional liquidity to such companies through banks and NBFCs.
Sources said the Reserve Bank of India (RBI) plans to provide additional liquidity to banks that can be used to buy bonds or other debt instruments of stressed companies. Last week, the Finance Ministry announced the launch of a new version of the ECLGS for companies which have loan dues up to 30 days (Special Mention Accounts or SMA 0) as on February 29, 2020 who will be provided additional credit of 20 per cent outstanding under the scheme.
Entities in 26 stressed sectors identified by the KV Kamath Committee, as well as the healthcare sector, with credit outstanding of above Rs 50 crore and up to Rs 500 crore as on February 29 are eligible to avail funding under the scheme. Tenor of additional credit availed under the scheme, which is open till March 31, 2021, is five years including one year of moratorium on principal repayment.
Along with the government’s steps, sources said the RBI’s focus of liquidity measures will now include revival of activity in specific sectors that have both backward and forward linkages, and multiplier effects on growth.
The central bank has decided to conduct on tap TLTRO (Targeted Long Term Repo Operations) with tenors of up to three years for a total amount of up to Rs 100,000 crore at a floating rate linked to the policy repo rate. Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by entities in specific sectors over and above the outstanding level of their investments in such instruments as on September 30, 2020.
Easing liquidity pressure
Entities in 26 stressed sectors identified by the Kamath Committee, as well as the healthcare sector, with credit outstanding of above Rs 50 crore and up to Rs 500 crore as on February 29, are eligible to avail funding under the scheme announced by the Finance Ministry. The RBI plan to provide liquidity support to entities in these sectors would further ease funding pressure for them.
Banks are sitting on over Rs 2 lakh crore of loans that could face slippages and restructuring in FY21. Sources said the TLTRO facility can be extended to all 26 stressed sectors identified by the Kamath panel. “The government and the RBI are working in coordination to provide much needed funding support to stressed companies. We believe the timing is now right as most sectors have opened up and the health impact of Covid-19 is showing a trend reversal. Measures taken now will provide survival and growth capital to healthy as well as stressed companies,” sources said.
“The RBI stands ready to undertake further measures as necessary to assure market participants of access to liquidity and easy financing conditions,” RBI Governor Shaktikanta Das had said while unveiling the monetary policy in October.
In a bid to better leverage the respective comparative advantages of the banks and non-banking financial companies (NBFCs), the RBI recently decided to provide greater operational flexibility to the lending institutions, while requiring them to conform to the regulatory guidelines on outsourcing and KYC. The primary focus of the new scheme, rechristened as Co-Lending Model, is to improve the flow of credit to the unserved and underserved sectors at an affordable cost.
Of the Rs 3 lakh crore of ECLGS for MSMEs, banks have sanctioned Rs 2.03 lakh crore out of which Rs 1.48 lakh crore has been disbursed till October 2020.
The ECLGS has been again extended as lockdowns are opening up gradually and demand is expected to increase during the second half of FY21. Sources said the government is open to increasing the Rs 3 lakh crore facility in case it is exhausted after deployment of funds to stressed companies.
Bank credit growth from May (Rs 102.2 lakh crore) to October (Rs 103.4 lakh crore) has been mainly supported by disbursements under ECLGS. As on October, disbursements under ECLGS were Rs 1.52 lakh crore, higher than gross bank credit growth of Rs 1.2 lakh crore (in absolute terms from May to October).
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