RBI governor Shaktikanta Das’s unscheduled address — Key Takeaways
Amidst rising COVID-19 cases in India and the second wave, RBI’s governor, Shaktikanta Das, announced various measures to revive the stressed economy in an unscheduled address last Wednesday. Here are some key highlights from his speech.
1. 50,000 crore Rs. liquidity scheme for the health care sector
Under this measure, it opened an on-tap liquidity window of Rs. 50,000 crore for up to 3 years at the repo rate (4%) till March 31, 2022. This will boost COVID related infrastructure in the country. Under this scheme, banks can provide fresh loans to a wide range of entities like vaccine manufacturers, importers, and suppliers of vaccines, COVID related drugs, and related medical equipment, pathology labs and hospitals, dispensaries, logistic, and also for the treatment of the patient. Banks may deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI. Such loans will be considered under the priority sector lending and will remain under the same category until repayment or maturity, whichever is earlier.
2. Loan restructuring for small borrowers
Borrowers with loans up to Rs. 25 crore , who didn’t opt for any restructuring earlier and were classified as standard will be considered for restructuring till September 30, 2021. Those borrowers availing framework 1.0, can have residual tenure extended up to two years. Restructuring under the proposed framework may be invoked up to September 30, 2021, and will have to be implemented within 90 days after invocation.
3. Incentivizing banks
Banks are incentivized to extend swift credit to weak sectors and will create a COVID loan book in their balance sheets. Money equal to the COVID book can be parked with the RBI at 40 bps above the reverse repo rate.
4. Measures for small finance and microfinance banks
The central bank would conduct special three-year long-term repo operations (SLTRO) of Rs. 10,000 crore at repo rate for small finance banks. Under this, SFBs can lend fresh loans up to 10 lakh per borrower. Small Finance Banks will be permitted to reckon fresh lending to Micro Finance Banks (With asset size up to Rs. 500 crore) for lending to individual borrowers under priority sector lending. This means, there will be a concession on interest rates and repayments. This facility will be available up to March 31, 2022.
5. Motivating inclusion of unbanked MSMEs
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). To further incentivize the 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.
6. G-SAP
Das said, “with system liquidity assured, the RBI is now focusing on increasingly channelizing its liquidity operations to support growth impulses, especially at the grass-root level”. 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 program) will be conducted on May 20, 2021.
7. Relaxations in Overdraft (OD) facilities of state government
Certain relaxations were announced in the overdraft facilities of the state government, helping them, to better manage their financial 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 30, 2021. The Ways and Means Advance (WMA) limits of states have already been enhanced on April 23, 2021.
Apart from these, Das announced, rationalization of KYC compliance norms enabling video-based KYC for certain categories. He also stated that a Normal monsoon forecast will help contain food price inflation as the production is expected to meet the demand in the coming times.
Thus, the fiscal measures were targeted towards infusing liquidity into the market, aimed and made for individuals and MSMEs. While the industry experts have been welcoming the measures taken, some argue that the measures taken are less compared to the quantum of the crisis and the liquidity crunch in the economy.
