Covid-19: RBI Governor's emergency measures to tackle 2nd wave

The Reserve Bank of India (RBI) announced a slew of measures to help India tackle the unprecedented Covid-19 crisis during the second wave. RBI Governor Shaktikanta Das started off his address by saying that the Indian economy was at an advantageous position after the first wave subsided in 2020 but added that the "situation has been altered drastically" in the wake of the deadlier Covid-19 wave that hit the country in April.

"The current situation has to be matched with policy actions which are calibrated, sequenced and well-timed," he added.

1- Measures to tackle COVID second wave

RBI Governor Shaktikanta Das said the measures proposed were part of the first round of calibrated and comprehensive strategy against the pandemic.

As part of the measures, the RBI eased lending and restructuring norms for all stakeholders, especially those smaller businesses and MSMEs that have been impacted by the second wave.

Priority lending facilities have also been announced for vaccine manufacturers and firms engaged in providing key medical supplies to hospitals during the pandemic.

2- Term liquidity of Rs 50,000 crore for emergency healthcare services

The first measure announced by Shaktikanta Das was 'Term Liquidity Facility' of Rs 50,000 crore to ease access to emergency health services. The RBI has also proposed "On-tap liquidity" of Rs 50,000 crore with tenor up to three years at repo rate, said the RBI governor.
"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 Covid-related drugs, logistics firms and also patients for treatment," RBI governor said.

3- SLTRO for SFBs

The second measure relates to special long-term repo operations (SLTRO) for small finance banks (SFBs), which primarily lend to micro, unorganised and small industries. "It has been decided to conduct special 3-year long-term repo operations (3-year SLTRO) of Rs 10,000 crore at repo rate for SFBs," Das said.
The facility will help them with fresh lending of up to Rs 10 lakh per borrower and it will be available till October 31, 2021.

4- Priority lending by SFBs to MFIs

The RBI also added that SFBs lending to micro-finance institutions (MFIs) will be classified as priority sector lending. The classification has been proposed in view of the fresh challenges brought on by the pandemic and to address the liquidity problems faced by smaller MFIs. Simply put, SFBs are now being permitted to lend to smaller MFIs with asset size of up to Rs 500 crore and this is likely to help individual borrowers on priority. This facility will be available up to March 31, 2022.

5- Credit to 'unbanked' MSME entrepreneurs

The RBI has also proposed an extension of a measure for incentivising the flow of credit to MSMEs borrowers. The measure was first announced in February 2021 and it allowed Scheduled Commercial Banks (SCBs) to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of cash reserve ratio (CRR).

6- Resolution 2.0 for individuals, small businesses

Shaktikanta Das said that the resurgence of the Covid-19 pandemic in India has led to disruption in economic activity due to localised restrictions. This has again hurt vulnerable category borrowers including individuals, small businesses and MSMEs. The RBI has allowed borrowers (individuals, small businesses and MSMEs) with aggregate exposure of up to Rs 25 crore -- who have not availed restructuring under earlier frameworks and classified as 'Standard' on March 31, 2021 -- shall be eligible to be considered under Resolution 2.0 framework.

7- Restructuring window for borrowers

The RBI has also allowed lending institutions to extend the restructuring window for borrowers who have already availed modification of their loans under the Resolution 1.0 framework.

"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 moratorium of less than two years, lending institutions are being 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," the RBI governor said.

8- Rationalisation of KYC compliance requirements

In view of Covid-19 restrictions in various parts of the country, regulated entities are being advised that for the customer accounts where periodic KYC updating is due/pending, no punitive restriction on operations of customer account(s) shall be imposed till December 31, 2021, unless warranted due 8 to any other reason or under instructions of any regulator/enforcement agency/court of law, etc. Introduction of more customer-friendly options, including the use of digital channels for the purpose of periodic updation of KYC details of customers.

9- Relaxation in overdraft facility for state governments

The RBI has also announced certain relaxation with regard to availment of overdraft facility by states. "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 RBI governor said.