RBI’s Economic Measures to Tackle 2nd Wave of Covid-19

What is the News?

The Reserve Bank of India(RBI) has announced measures to help India to tackle the unprecedented Covid-19 crisis during the second wave.

Measures announced by the RBI:

On-Tap Liquidity Facility:

  • RBI has opened a Rs 50,000-crore on-tap liquidity window with a tenor of up to three years.
  • Banks can borrow from this facility at the repo rate of 4% till March 31, 2022.
  • Banks can lend the amount to a range of entities linked directly and indirectly to the healthcare sector.
  • These loans will be classified under priority sector lending till the repayment or maturity whichever is earlier.
  • Further, Banks are expected to create a ‘Covid loan book’ under the scheme.
  • By creating such a loan book, banks can park surplus liquidity up to the size of the ‘Covid loan book’ with the RBI. The banks will get 40 bps higher than the reverse repo rate for these funds.
Liquidity Support for Small Finance Banks(SFBs):
  • RBI will conduct a special three-year long-term repo operation (SLTRO) worth Rs 10,000 crore at a repo rate for small finance banks.
  • SFBs will, in turn, use these funds to lend to the small business units. This includes micro and small industries and unorganised sector entities adversely affected during the current wave of the pandemic.
  • The lending cap of these funds is fixed up to Rs 10 lakh per borrower.
Wider ‘Priority Sector’ Benefits for SFBs:
  • SFBs will be permitted to provide fresh lending to smaller Micro Finance Institutions(MFIs) (with asset size of up to Rs 500 crore).
  • Further, there will be concessions on interest rates and repayments. This facility is also available up to March 31, 2022.
Resolution framework 2.0 for individuals, small businesses and MSMEs:
  • The RBI mentions few criteria for eligibility to Individuals, borrowers and MSMEs for Resolution Framework 2.0. Such as
    • Individuals, borrowers and MSMEs with aggregate exposure up to Rs. 25 crore
    • Also, they must not avail of loan restructure under any previous frameworks
    • Those who were classified as ‘standard’ on 31 March 2021
  • The restructuring under this new framework can be invoked till 30 September 2021. After invoking the restructuring will be implemented within 90 days.
Credit to MSME Entrepreneurs:
  • In February 2021, the banks were allowed to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL). This is used to calculate the cash reserve ratio (CRR)
  • To further incentivise the MSMEs this exemption is widened. Thus, it is made available for exposures up to Rs 25 lakh and credit disbursement up to the fortnight ending October 1, 2021.
  • This facility will now be extended till December 31, 2021.
Overdraft(OD) facility for states
  • The RBI also announced certain relaxations in Overdraft(OD) facilities of State Governments. This is to facilitate better management of their financial situation in terms of cash flows and market borrowings.
  • Accordingly, the maximum number of days of OD in a quarter is increased from 36 to 50 days.
  • Further, the number of consecutive days of OD is also increased from 14 to 21 days.

Source: Indian Express

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