RBI announces Rs 50,000 crore lending to improve emergency health services

New Delhi: The Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday announced a series of measures to support the nation's fight against the second wave of COVID-19 infections. "Alleviating any constraint from the financing side for all stakeholders – government, hospitals and dispensaries, pharmacies, vaccine and medicine manufacturers or importers, medical oxygen manufacturers or suppliers, private operators engaged in the critical healthcare supply chain, and above all the common man who may be facing a sudden spike in health expenditure – requires a comprehensive targeted policy response," Das said while announcing the measures. "Small businesses and financial entities at the grass-root level are bearing the biggest brunt of the second wave of infections", he added.

The measures form the first part of a calibrated and comprehensive strategy against the pandemic, said the Governor.

Liquidity facility

Governor announced term Liquidity Facility of Rs 50,000 crore with tenure of up to three years, at repo rate, to ease access to emergency health services, for ramping up COVID-related health infrastructure and services. Banks can give fresh lending support to a variety of stakeholders under this facility. This lending facility will be available up to March 31, 2022. Banks will be provided incentives to provide credit under this facility.

Special long term repo operations for small finance banks

In order to provide further support to micro, small and other unorganised sector entities, three-year repo operations of Rs 10,000 crore at repo rate, for fresh lending up to Rs 10 lakh per borrower; the facility is available up to October 31, 2021.

Lending by Small Finance Banks (SFBs) to MFIs for on-lending to be classified as priority sector lending

In view of fresh challenges, SFBs are now permitted to regard fresh on-lending to MFIs with asset size up to Rs 500 crore, as priority sector lending. This facility will be available up to March 31, 2022.

Credit flow to MSME entrepreneurs

To further incentivize the inclusion of unbanked MSMEs into the banking system, the exemption provided in February 2021 wherein scheduled banks were allowed to deduct credit given to new MSME borrowers from Net Time & Demand Liabilities for calculation of CRR, is now extended to December 31, 2021.

Stress resolution framework 2.0 for individuals, small businesses and MSMEs

The following set of measures have been announced to relieve stress faced by the most vulnerable categories of borrowers – namely individuals, borrowers and MSMEs.

1. Individuals, borrowers and MSMEs with aggregate exposure up to Rs. 25 crore, who have not availed restructuring under any previous frameworks, who were classified as standard on March 31, 2021, will be eligible to be considered under Resolution Framework 2.0. Restructuring under the new framework can be invoked till September 30, 2021, and will have to be implemented within 90 days after invocation.

2. For individuals and small businesses who have availed restructuring of loans under Resolution Framework 1.0, where a moratorium of fewer than 2 years was permitted, lending institutions can now increase the period and/or extend residual tenure up to a total period of 2 years.

3. In respect of small businesses and MSMEs restructured earlier, lending institutions are now permitted to review working capital sanction limits, as a one-time measure.
Rationalization of KYC norms for enhanced customer experience. The steps being proposed include:

a. Extending the scope to video KYC for new customer categories such as proprietorship firms,

b.  Conversion of limited KYC accounts to fully KYC compliant accounts.

c. Introduction of more customer-friendly options in KYC updating and d) enabling the use of KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP and submission of electronic documents as identity proof.

Floating provisions and countercyclical provisioning buffer

Banks can now use 100 percent of floating provisions held by them, as on December 31, 2020, for making specific provisions for NPAs; such utilisation is permitted up to March 31, 2022.

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Relaxation of overdraft facility for states

The maximum number of days of overdraft in a quarter for state governments has been increased from 36 to 50 days. The number of consecutive days of OD has been increased from 14 to 21 days; facility available up to September 30, 2021.

The Governor concluded that the second wave is not insurmountable. Stating the immediate objective, which is to preserve human life and restore livelihoods through all means possible, the RBI Governor stated that RBI is battle-ready to ensure financial conditions remain congenial and markets continue to work efficiently. In this, the RBI is committed to go unconventional and devise new responses as per demand, said Das.

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