The Reserve Bank of India (RBI) recently announced a suite of measures to bolster the nation’s fight against the second wave of Covid-19 infections. These steps, forming an integral part of a thorough and phased strategy against the pandemic, were also taken in 2020 to help combat the economic fallout from the health crisis.
Term Liquidity Facility for Supporting Healthcare Infrastructure
A key component of these measures is the Term Liquidity Facility worth Rs. 50,000 crore with a tenure of up to 3 years at a repo rate. This is aimed at making credit more accessible to emergency health service providers. The scheme enables banks to lend to a broad range of entities such as vaccine manufacturers, importers/suppliers of vaccines, medical equipment companies, hospitals, pathology labs, and suppliers of oxygen and ventilators. These loans will continue to be classified under the priority sector till repayment or maturity, whichever is sooner. The lending facility will be available until March 31st, 2022.
Special Long Term Repo Operations for Small Finance Banks
The RBI will also conduct special three-year long-term repo operations (SLTRO) of Rs. 10,000 crore at the repo rate specifically for small finance banks (SFBs). The SFBs can use these funds for fresh lending of up to Rs. 10 lakh per borrower. This will provide additional support to small business units, micro and small industries, and other unorganised sector entities negatively affected by the current Covid-19 wave.
Priority Sector Lending and Support for MSME Entrepreneurs
In a move to further promote inclusion of unbanked Micro, Small and Medium Enterprises (MSMEs) into the banking system, the RBI has now permitted SFBs to consider fresh lending to Microfinance institutions (MFIs) with assets up to Rs. 500 crore as priority sector lending. This facility will be available until March 31st, 2022.
Furthermore, an incentive provided in February 2021, exempting scheduled banks from calculating the Cash Reserve Ratio (CRR) from credit given to new MSME borrowers, has now been extended till December 31st, 2021.
Stress Resolution Framework 2.0
The second iteration of the Stress Resolution Framework aims to alleviate stress faced by the most vulnerable categories of borrowers including individuals and MSMEs. For those who have availed restructuring of loans under the first Framework, lending institutions can now extend the residual tenure up to a total period of 2 years.
Floating Provisions and Countercyclical Provisioning Buffer
Another measure is allowing banks to utilise 100% of floating provisions held by them as of December 31st, 2020, for making specific provisions for Non-Performing Assets (NPAs). This is aimed at easing pandemic related stress on banks and aid capital conservation.
Relaxing Overdraft Facility Rules for States
To help states better manage their fiscal situation, RBI increased the maximum number of overdraft days in a quarter from 36 to 50 and the number of consecutive overdraft days from 14 to 21. This facility is available until September 30th, 2021.
Rationalizing KYC Norms
RBI has also decided to broaden the scope of video KYC or V-CIP for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of legal entities.
The Way Forward
Dealing with the rapid spread of the virus necessitates swift and far-reaching actions that reach the most vulnerable. As India ramps up vaccines and medical support amidst rising infection and mortality rates, shoring up livelihoods and restoring normalcy in access to workplaces, education and incomes is crucial.
