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Wednesday, May 18, 2022

Explained: RBI’s Rs 50,000 crore fund support to healthcare; liquidity push

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

Written by George Mathew , Edited by Explained Desk | Mumbai |
Updated: May 11, 2021 8:38:15 am
Reserve Bank of India Governor Shaktikanta Das at the RBI office in New Delhi. File/Express Photo by Tashi Tobgyal

With the raging Covid pandemic putting severe stress on the economy, the Reserve Bank of India (RBI) on Wednesday unveiled a host of measures to boost fund flow to the healthcare sector and ease the pain of small borrowers and units. The RBI has opened an on-tap liquidity window of Rs 50,000 crore with tenors of up to three years at the repo rate – four per cent — till March 31, 2022 to boost provision of immediate liquidity for ramping up Covid-related healthcare 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, manufactures and suppliers of oxygen and ventilators, importers of vaccines and Covid-related drugs, logistics firms and also patients for treatment, RBI Governor Shaktikanta Das said while announcing the measures.

Das said banks are being incentivised for quick delivery of credit under the scheme 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.

Banks are expected to create a Covid loan book under the scheme, he said. By way of an additional incentive, such banks will be eligible to park their surplus liquidity up to the size of the Covid loan book with the RBI under the reverse repo window at a rate which is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate, he said.

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RBI’s Rs 10,000 crore liquidity support for small finance banks

The RBI has decided to conduct special three-year long-term repo operations (SLTRO) of Rs 10,000 crore at repo rate for small finance banks, to be deployed for fresh lending of up to ?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 Rs 500 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.

Resolution framework Covid-related stressed assets of individuals, small businesses and MSMEs

The RBI 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 1.0 dated August 6, 2020), and who were classified as ‘Standard’ as on March 31, 2021 will be eligible to be considered under Resolution Framework 2.0. Restructuring under the proposed framework may be invoked up to September 30, 2021 and will have to be implemented within 90 days after invocation.

In the case of individual borrowers and small businesses who have availed restructuring of their loans under Resolution Framework 1.0, 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 period of moratorium and/or extending the residual tenor up to a total of 2 years.

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Credit to MSME entrepreneurs

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 is being extended till December 31, 2021.

Overdraft (OD) facility for states

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 up to September 11 30, 2021. The Ways and Means Advance (WMA) limits of states have already been enhanced on April 23, 2021.

KYC rationalisation

The RBI has decided to rationalise certain components of the extant KYC norms. These include (a) extending the scope of video KYC known as V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of Legal Entities and for periodic updation of KYC, (b) conversion of limited KYC accounts opened on the basis of Aadhaar e-KYC authentication in non-face-to-face mode to fully KYC-compliant accounts, (c) enabling the use of KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP and submission of electronic documents (including identity documents issued through DigiLocker) as identify proof and (d) introduction of more customer-friendly 10 options, including the use of digital channels for the purpose of periodic updation of KYC details of customers.

What RBI Governor Shaktikanta Das said

GLOBAL ECONOMY: The global economy is exhibiting incipient signs of recovery as countries renew their tryst with growth, supported by monetary and fiscal stimulus. Still, activity remains uneven across countries and sectors

INFLATION: The inflation trajectory over the rest of the year 5 will be shaped by the Covid-19 infections and the impact of localised containment measures on supply chains and logistics.

BUSINESS HIT: Small businesses and financial entities at the grassroot level are bearing the biggest brunt of the second wave of infections.

RBI STANCE: We are committed to go unconventional and devise new responses as and when the situation demands.

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