RBI extends Rs 50,000 crore for Covid war, relief for small borrowers

MUMBAI: Reserve Bank of India has opened its purses to fund the second battle in the war against Covid by providing a Rs 50,000 crore liquidity window to ramp up healthcare infrastructure. While it did not announce a blanket moratorium on all repayments like in 2020, It did extend relief to individuals and small businesses who have loans up to Rs 25 crore by allowing them to seek a loan restructuring.
“This is the first part of a calibrated and comprehensive strategy against the pandemic,” said RBI governor Shaktikanta Das in a public announcement said that he was willing to take many more `small and big steps including unconventional measures and work with the government to `ameliorate the extreme travails that our citizens are undergoing in this hour of distress.
The governor also kept on his efforts to contain interest rates by announcing Rs 35,000 crore of government bonds on May 20 under its government securities acquisition plan. The announcement brought down bond yields to below 6% and also boosted bank stocks in early trade.
Besides relief for borrowers and funding for healthcare, the RBI announced a host of steps that would provide funds for those who lend to the micro-segment. These included a Rs 10,000 crore refinance to small finance banks at 4% for lending to small borrowers through a special three-year long-term repo.
Small Finance Banks have been encouraged to lend to microfinance institutions (which have been under stress) by allowing them to classify these loans as priority sector advances. Banks have been prompted to lend to small businesses, with loans up to Rs 25 lakh, by exempting deposits used for these loans from cash reserve requirements.
Banks have been allowed to use their floating provisions for making specific provisions for bad loans – this move will reduce their need for capital.
According to bankers, unlike last year, this year there is no carte blanche relief to borrowers on repayment and they will have to seek approval from lenders. Lenders can prevent small loans from going bad by doing a customised restructuring and giving them an additional two years to repay. This relief is available for those who have availed of restructuring earlier as well and benefit 85% of all bank borrowers in India.
According to Ashwini Kumar Tewari, MD, SBI, it is the individual and small businesses that have a problem with liquidity and gets required relief from these measures. “Top corporates do not have a problem as there is adequate liquidity. Also, this is the first in steps and if measures are required for corporates measures can be announced”.