To cushion the economic impact of the second wave of Covid-19, the Reserve Bank of India swung into action on Wednesday, announcing a slew of measures aimed at easing the financing constraints being faced by vaccine manufacturers and importers of life-saving equipment, besides small/medium businesses and individuals.
The central bank announced a special on-tap liquidity of ₹50,000 crore with tenor up to three years at repo rate (4 per cent) for lending to emergency healthcare required to fight Covid crisis. The macro impact of the scheme can be gauged from the fact that ₹50,000 crore is roughly 9 per cent of India’s total health expenditure of ₹6-lakh crore under private final consumption expenditure in 2019-20. Unveiling these measures, Governor Shaktikanta Das emphasised that the central bank is committed to go unconventional and devise new responses as and when the situation demands.
“Major beneficiaries of the announced healthcare liquidity scheme would be pharmaceutical manufacturers, vaccine-makers, healthcare equipment manufacturers, hospitals and diagnostic players. Penetration of hospitals/dispensaries may increase as players can now opt for capex funding. Also, diagnostic chains can use this opportunity to penetrate into Tier-II cities and beyond,” said Rahul Prithiani, Director, Crisil.
The stock markets gave a thumbs-up to the RBI moves. The Sensex, which was trading just around 40-50 points higher in the morning, closed with gains of 424 points, or 0.88 per cent, at 48,677. The Nifty closed higher by 0.84 per cent or 121 points at 14,671.
To provide support to small businesses, micro and small units, and unorganised sector entities affected by the Covid second wave, the RBI said it will conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at repo rate for small finance banks (SFBs), to be deployed for fresh lending of up to ₹10 lakh per borrower. This will be available till October 31, 2021.
To address liquidity issues of smaller microfinance institutions, SFBs have been permitted to consider fresh lending to the MFIs (with asset size of up to ₹500 crore) for on-lending to individual borrowers as PSL.
Individuals, small businesses and MSMEs, which did not resort to any of the earlier restructuring frameworks, having an aggregate exposure of up to ₹25 crore and were classified as ‘Standard’ as on March 31, 2021, will be eligible to be considered for restructuring under Resolution Framework 2.0 for Covid-related stressed assets.
This restructuring is open up to September 30, 2021 and will have to be implemented within 90 days of invocation. In respect of individual borrowers and small businesses that availed themselves of loan restructuring under Resolution Framework 1.0, where the resolution plan permitted moratorium of less than two years, the RBI said lending institutions can modify such plans to increase the period of moratorium and/or extend the residual tenor up to a total of two years. For small businesses and MSMEs restructured earlier, lending institutions can, as a one-time measure, review the working capital sanctioned limits.
To further incentivise inclusion of unbanked MSMEs into the banking system, the current incentive to deduct credit disbursed to new borrowers from banks’ deposits for calculation of the cash reserve ratio (CRR) has been extended further. This exemption, currently available for exposures up to ₹25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, has been extended till December 31, 2021.
INTO THE BREACH, AGAIN
- ₹10,000-cr special long-term repo operations for SFBs to lend to individuals and small biz
- Restructuring of Covid-related stressed assets of individuals, small biz and MSMEs
- Rationalisation of compliance to KYC requirements
- Utilisation of floating provisions and countercyclical provisioning buffer for banks
- Relaxation in overdraft facility for State governments