The Reserve Bank of India (RBI) on Wednesday announced a Covid relief package of Rs 50,000 crore for vaccine producers, medical equipment suppliers, healthcare and hospitals, and even patients in need of funds to treat the disease, while opening up another round of restructuring of loans for individual and small borrowers for up to two years. The RBI also said it would be buying Rs 35,000 crore of bonds from the secondary market on May 20. This will be part of the Rs 1 trillion Government Securities Acquisition Programme (G-SAP) scheduled for the quarter, of which Rs 25,000 crore has already been done. Yields reacted positively to the RBI measures and the 10-years bonds dropped below 6%.
RBI announces loan relief, Rs 50,000 cr liquidity to support in Covid
Shaktikanta Das announced these all measures in an unscheduled press conference
on Wednesday morning, in the first concrete effort by a central agency to fight
the stress brought forward by the rising second wave of Covid.
immediate objective is to preserve human life and restore livelihoods through
all means possible,” Das said, adding, “We are committed to go unconventional
and devise new responses as and when the situation demands.”
bank stood in “battle readiness” to ensure that financial conditions remain
congenial and markets continue to work efficiently.
50,000 crore emergency health services loans, which can be given by banks till
March 31, 2022, will be classified as priority sector loans for three years or
repayment, whichever is earlier. Priority sector loans are exempted from
maintaining cash reserve or statutory liquidity ratios, and so banks can extend
them at concessional rates too.
banks can avail of the funds at repo rate, currently at 4%, for providing fresh
loans to a wide range of entities related to Covid care. Banks can lend this
amount directly, or through intermediaries, and should create a 'Covid loan
book’ under the scheme.
the lenders, the RBI said banks would be eligible to park their surplus
liquidity up to the size of the Covid loan book with the RBI at repo rate minus
25 basis points, or at 3.75%. Presently, banks park their excess funds at the
reverse repo rate, which is 3.35%.
Soumya Kanti Ghosh, group chief economic advisor of the State Bank of India
(SBI) group, the health loan will have a trickle effect on other sectors as
well. The amount of Rs 50,000 crore is roughly 9% of India’s total health
expenditure of Rs 6 trillion.
Mr. Ghosh, “A
direct support to the sector will generate total output demand of roughly Rs
80,000 crore. The sectors to benefit include organic chemicals, rubber,
plastics among others where the limit utilisation is close to 55%”.
To ease the
Covid stress, the RBI governor extended another round of restructuring for
individual borrowers and small businesses.
said such borrowers with a loan outstanding of up to Rs 25 crore, and who did
not avail of moratorium or restructuring relief last year, could ask for
restructuring of their loans for up to two years.
remains open up to September 30, and banks will have to do the restructuring
within 90 days of receiving the request. For this purpose, loans that were
standard as on March 31 will be considered.
borrowers and small businesses that availed of the facility last year but
allowed restructuring of less than two years can now demand to stretch their
repayment period up to two years, the RBI governor said.
cautioned that this was not a moratorium of loans, but leaving the discretion
to banks to extend relief as they deem fit.
chief executive officer of Indian Bank's Association (IBA), said about 90% of
borrowers would be eligible for the restructuring.
said, “Since it will be for standard assets, those with dues of 89 days can
also avail of recast benefit. The room to increase moratorium term for those
who availed of restructuring last year will give them support during the
present phase, which may impact business prospects".
even when an account is categorised as stressed for not servicing loans for a
month or two can avail of the restructuring.
The RBI also
opened up a special long term repo operation window for small finance banks
(SFB), whereby the banks can borrow funds up to Rs 10,000 crore at repo rate
for deploying for fresh loans of up to Rs 10 lakh per borrower.
by SFBs to small microfinance institutions (MFIs) that have asset size of up to
Rs 500 crore will now be considered under priority sector. Banks don't need to
maintain CRR or statutory liquidity ratio (SLR) on their priority sector loans.
RBI extended some measures taken last year for banks and other entities to ease
the pain related to the resurgence of the pandemic.
it allowed banks to exclude loans up to Rs 25 lakh given to the micro, small
and medium enterprises from its net demand and time liabilities (NDTL) for the
purpose of calculating cash reserve ratio (CRR). This scheme was to end on
October 21, now it can be done till December 31.
Banks were also
allowed to use 100% of their floating provisions set aside as buffers for bad
times to cover their specific bad debts.
economists saw the surprise measure as a precursor for other measures to come.
Some of those measures could come in the monetary policy meet scheduled in
interesting part here is that as the RBI believes that the impact this time
will be less than that of last year, there will probably be no announcement of
a moratorium as of now. Depending on the evolving circumstances there can be
more measures expected from the RBI in the coming months," said Madan
Sabnavis, chief economist of Care Ratings.
Kaushik Das, chief India economist of Deutsche Bank, the measures announced
were only the first step while “it is reasonable to expect more regulatory
measures in the upcoming June policy and thereafter, depending on the evolving
Covid-19 trajectory and macro situation.”
Deutsche Bank doesn’t expect any immediate measures from the government as the
RBI measures were taken after consultation with banks and the government.
Reference Source: Business Standard weblink