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Rs 50,000-crore boost for health, loan recast for small borrowers

RBI Governor Shaktikanta Das Speech, Announcements: The Reserve Bank of India (RBI) announced a term liquidity facility of Rs 50,000 crore for access to emergency health security.

Written by George Mathew
Mumbai | Updated: May 6, 2021 3:33:29 am
rbi, rbi governor, rbi governor shaktikanta das, rbi news, rbi monetary policy committeeRBI Governor Shaktikanta Das (Express Photo by Prashant Nadkar)

WITH THE SECOND wave of Covid-19 putting fresh stress on the economy, the Reserve Bank of India Wednesday unveiled a host of measures to boost fund flow to the healthcare sector and pump more liquidity into the system, apart from providing another window to individual borrowers and small units for loan restructuring.

The central bank has opened an on-tap liquidity window of Rs 50,000 crore with tenors of up to three years at the repo rate – 4 per cent — till March 31, 2022, to boost provision of immediate liquidity for ramping up Covid-related health care infrastructure and services in the country.

Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufacturers, importers and suppliers of vaccines and priority medical devices, hospitals and dispensaries, pathology labs, manufacturers and suppliers of oxygen and ventilators, importers of vaccines and Covid-related drugs, logistics firms and also patients for treatment

Announcing the measures, RBI Governor Shaktikanta Das said borrowers — individuals and small businesses and MSMEs — having aggregate exposure of up to Rs 25 crore and who have not availed restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework dated August 6, 2020), and who were classified as ‘Standard’ as on March 31, 2021, will be eligible under the new resolution framework.

Restructuring under the proposed framework may be invoked up to September 30, 2021, and will have to be implemented within 90 days after invocation. “Small businesses and financial entities at the grassroot level are bearing the biggest brunt of the second wave of infections,” Das said. The last round of debt recast under a special window ended on December 31 and banks and financial services companies have been seeking more relief.

In the case of individual borrowers and small businesses who have availed restructuring of their loans under the previous Resolution Framework, where the resolution plan permitted moratorium of less than two years, lending institutions will be permitted to use this window to modify such plans to the extent of increasing the moratorium period and/ or extending the residual tenor up to a total of two years.


Focusing on stress segments

THE segments worst hit by the second wave have got some relief. These include a liquidity boost to ramp up healthcare infrastructure, and more time till September 30 to small borrowers for restructuring their loans.

Das said banks are being incentivised for quick delivery of credit under the Rs 50,000 crore liquidity scheme for healthcare through extension of priority sector classification to such lending up to March 31, 2022. These loans will continue to be classified under priority sector till repayment or maturity, whichever is earlier.

“Banks may deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI,” Das said. “At the RBI, we stand in battle readiness to ensure that financial conditions remain congenial and markets continue to work efficiently,” Das said.

The central bank also said it would conduct special three-year long-term repo operations (SLTRO) of Rs 10,000 crore at repo rate for small finance banks (SFBs), to be deployed for fresh lending of up to Rs 10 lakh per borrower. This is to provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic. SFBs will be permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs500 crore) for on-lending to individual borrowers as priority sector lending.This means there will be concessions on interest rates and repayments. This facility will be available up to March 31, 2022.

Given the positive response from the market, the RBI has decided that the second purchase of government securities for an aggregate amount of Rs 35,000 crore under G-SAP (government securities acquisition programme) will be conducted onMay 20, 2021. “With system liquidity assured, the RBI is now focusing on increasingly channelising its liquidity operations to support growth impulses, especially at the grassroot level,” Das said. In February 2021, banks were allowed to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR). In order to further incentivise inclusion of unbanked MSMEs into the banking system, this exemption currently available for exposures up to Rs 25 lakh and for credit disbursed up to the fortnight ending October 1,2021 has been extended till December 31, 2021.

The RBI also announced certain relaxations in Overdraft (OD) facilities of state governments so that they can better manage their fiscal situation in terms of their cash-flows and market borrowings. Accordingly, the maximum number of days of OD in a quarter is being increased from 36 to 50 days and the number of consecutive days of OD from 14 to 21 days. This facility will be available upto September 11 30, 2021. The Ways and Means Advance (WMA) limits of states have already been enhanced on April 23, 2021.

Industry players said the move to support these borrowers would help, given the fresh dose of uncertainty in the outlook. “The RBI governor has taken the financial sector battle against covid 2.0 head on with a clear focus on protecting lives and livelihoods. CII welcomes the support to individual and MSME borrowers and ease of banking through digital means,” said Uday Kotak, President, Confederation of Indian Industry.

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