RBI unveils additional Covid-related measures to alleviate financing constraints

Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday unveiled additional Covid-19 related measures to alleviate any constraint from the financing side for all stakeholders, including those involved in the healthcare supply chain, individuals, small businesses and micro, small, and medium enterprises (MSMEs).

As part of the measures, RBI will put in place a Term Liquidity Facility of ₹50,000 crore to ease access to emergency health services; undertake Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs); and allow lenders to implement a Resolution Framework 2.0 for Covid Related Stressed Assets of individuals, small businesses and MSMEs, among others. 

While unveiling the additional measures, Das also emphasised that the central bank is committed to going unconventional and devising new responses when the situation demands.

To boost the provision of immediate liquidity for ramping up Covid related healthcare infrastructure and services in the country, RBI will open an on-tap liquidity window of ₹50,000 crore with tenures of up to three years at the repo rate till March 31, 2022.

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

Incentive to create Covid loan book

Das said Banks are being incentivised to quickly deliver credit under the scheme (and create a Covid loan book) through the extension of priority sector classification to such lending up to March 31, 2022. These loans will continue to be classified under the priority sector till repayment or maturity, whichever is earlier.

Banks can deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI.

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 that is 40 basis points higher than the reverse repo rate (of 3.35 per cent).

Liquidity support to SFBs and MFIs

The central bank has decided to conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at a repo rate (of 4 per cent) for the Small Finance Banks (SFBs), to be deployed for fresh lending of up to ₹10 lakh per borrower. This facility will be available till October 31, 2021.

The Governor observed that this would 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.

Because of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller micro-finance institutions (MFIs), SFBs have been permitted to reckon fresh lending to smaller MFIs (asset size of up to ₹500 crore) for on-lending to individual borrowers as priority sector lending. This facility will be available up to March 31, 2022.

Credit to MSME Entrepreneurs

In order to further incentivise the inclusion of unbanked MSMEs into the banking system, the current incentive to deduct credit disbursed to new MSME borrowers from Banks’deposits for calculation of the cash reserve ratio (CRR) is further extended. 

This exemption, currently available for exposures up to ₹25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, is being extended till December 31, 2021.

Resolution Framework 2.0 for Covid Related Stressed Assets

Individuals, small businesses, and MSMEs, who have not availed restructuring under any of the earlier restructuring frameworks, have aggregate exposure of up to ₹25 crore and classified as ‘Standard’ as of 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 shall have to be implemented within 90 days after invocation.

In respect of individual borrowers and small businesses who have availed restructuring of their loans under Resolution Framework 1.0, where the resolution plan permitted a moratorium of less than two years, RBI said lending institutions are being permitted to use this window to modify such plans to the extent of increasing the period of the moratorium and/or extending the residual tenor up to a total of two years. However, other conditions will remain the same.

In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc.

In order to mitigate the pandemic related stress on banks and as a measure to enable capital conservation, RBI will allow Banks to utilise 100 per cent of floating provisions/ counter-cyclical provisioning buffer held by them as of December 31, 2020, for making specific provisions for non-performing assets with prior approval of their Boards. Such utilisation is permitted with immediate effect and up to March 31, 2022.

RBI stands in battle readiness

Das said: “Today, we have taken some steps, and we will continue to be proactive throughout the year – taking small and big steps – to deal with the evolving situation.

“I call upon all stakeholders to come forward once again to address the challenges posed by the current wave of the pandemic while remaining on guard against future waves.”

The Governor observed that the RBI would closely and continuously monitor all incoming data to assess the impact of the second wave on macroeconomic and financial conditions on a real-time basis.

Das underscored that RBI stands in battle readiness to ensure that financial conditions remain congenial and markets continue to work efficiently. 

“We will work in close coordination with the Government to ameliorate the extreme travails that our citizens are undergoing in this hour of distress,” he said.