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RBI steps in to ease COVID-19 burden

Context:

With India’s economic recovery threatened by the COVID-19 second wave, the Reserve Bank of India stepped in with measures aimed at alleviating any financing constraints for healthcare infrastructure and services, as well as small borrowers who may be facing distress due to a sudden spike in health expenditure.

Relevance:

GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of Resources)

Dimensions of the Article:

  1. Unscheduled Support extended by the RBI
  2. Small businesses, MSMEs to get relief
  3. Credit Support

Unscheduled Support extended by the RBI

  • RBI Governor announced a Term Liquidity Facility of ₹50,000 crore with tenor of up to three years, at the repo rate, to ease access to credit for providers of emergency health services.
  • Under the scheme, banks will provide fresh lending support to a wide range of entities, including vaccine manufacturers, importers/suppliers of vaccines and priority medical devices, hospitals/dispensaries, pathology labs, manufacturers and suppliers of oxygen and ventilators, and logistics firms.
  • These loans will continue to be classified under priority sector till repayment or maturity, whichever is earlier.

Small businesses, MSMEs to get relief

  • As part of a “comprehensive targeted policy response”, the RBI also unveiled schemes to provide credit relief to individual and MSME borrowers impacted by the pandemic.
  • The RBI also announced measures to protect small and medium businesses and individual borrowers from the adverse impact of the intense second wave of COVID-19 buffeting the country.
  • RBI unveiled a Resolution Framework 2.0 for COVID-related stressed assets of individuals, small businesses and MSMEs and also expressed the central bank’s resolve to do everything at its command to ‘save human lives and restore livelihoods through all means possible’.
  • Considering that the resurgence of the pandemic had made these categories of borrowers most vulnerable, the RBI said those with aggregate exposure of up to ₹25 crore, who had not availed restructuring under any of the earlier restructuring frameworks (including under last year’s resolution framework), and whose loans were classified as ‘standard’ as on March 31, 2021, were eligible for restructuring under the proposed framework.

Credit Support

  • To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, the RBI decided to conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at the repo rate for Small Finance Banks.
  • The SFBs would be able to deploy these funds for fresh lending of up to ₹10 lakh per borrower.
  • In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to ₹500 crore) for onlending to individual borrowers as priority sector lending.
  • To enable the State governments to better manage their fiscal situation in terms of their cash flows and market borrowings, maximum number of days of overdraft (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.

-Source: The Hindu

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October 2022
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