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RBI’s package for health services, small borrowers, MSMEs

Shaktikanta Das, Governor, Reserve Bank of India

The Reserve Bank of India (RBI) came out with several measures to protect small and medium businesses and individual borrowers from the adverse impact of the severe second wave of covid across the country. The central bank also made provisions for banks to advance loans to businesses and restructure loans for enhancing liquidity in the system to help mitigate the crisis. It announced a Resolution Framework 2.0 for covid-related stressed assets of individuals, small businesses and MSMEs and also decided to do everything at its command to ‘save human lives and restore livelihoods through all means possible’.

Shaktikanta Das, Governor, Reserve Bank of India, made the announcement in a surprise move on 5 May.

Significant among the measures is an on-tap liquidity window of ₹500 billion with tenures of up to 3 years at the repo rate, which will be open till 31 March 2022. Under the scheme, banks can provide fresh lending support to a wide range of entities, including vaccine manufactures; importers/suppliers of vaccines and priority medical devices, hospitals/dispensaries; pathology labs, manufactures and suppliers of oxygen and ventilators, importers of vaccines and covid related drugs, logistics firms and patients for treatment.

Banks are being incentivised for quick delivery of credit under the scheme through extension of priority sector classification to such lending. These loans will continue to be classified under priority sector till repayment or maturity, whichever is earlier. Banks are expected to create a covid loan book under the scheme. Such banks will be eligible to park their surplus liquidity up to the size of such book with the RBI under the reverse repo window at a rate which is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate.


To provide further support to small business units, micro and small industries and other unorganised sector entities adversely affected by the pandemic, RBI said it will conduct special 3-year long-term repo operations (SLTRO) of ₹100 billion at repo rate for the small finance banks, to be deployed for fresh lending of up to ₹1 million per borrower. This facility will be available till 31 October 2021.

Lending to MFIs under PSL

Small finance banks are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to ₹5 billion) for on-lending to individual borrowers as priority sector lending. This facility will be available up to 31 March 2022.

Credit to MSME Entrepreneurs

In February 2021 scheduled commercial banks were allowed to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR). This exemption currently available for exposures up to ₹2.5 million and for credit disbursed up to the fortnight ending 1 October 2021 is being extended till 31 December  2021.

₹350 billion under G-SAP

Given the positive response from the market, RBI decided that the second purchase of government securities for an aggregate amount of ₹350 billion under Government Securities Acquisition Programme (G-SAP) 1.0 will be conducted on 20 May 2021.

Resolution Framework 2.0

The following set of measures have been announced, specifically targeting the most vulnerable category of borrowers are individual borrowers, small businesses and MSMEs.

(a) Borrowers – individuals and small businesses and MSMEs having aggregate exposure of up to ₹2.5 billion and who have not availed restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework 1.0 dated 6 August 2020), and who were classified as ‘Standard’ as on 31 March 2021 – shall be eligible to be considered under Resolution Framework 2.0. Restructuring under the proposed framework may be invoked up to 30 September 2021 and shall have to be implemented within 90 days after invocation.

(b) In respect of individual borrowers and small businesses who have availed restructuring of their loans under Resolution Framework 1.0, where the resolution plan permitted moratorium of less than 2 years, lending institutions are being permitted to use this window to modify such plans to the extent of increasing the period of moratorium and/or extending the residual tenor up to a total of 2 years. Other conditions will remain the same.

(c) In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc.

Rationalisation of KYC Compliance

RBI also decided to rationalize certain components of the extant KYC norms. These include (a) extending the scope of video KYC known as V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorized signatories and beneficial owners of Legal Entities and for periodic updation of KYC; (b) conversion of limited KYC accounts opened on the basis of Aadhaar e-KYC authentication in non-face-to-face mode to fully KYC-compliant accounts; (c) enabling the use of KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP and submission of electronic documents (including identity documents issued through DigiLocker) as identify proof; (d) introduction of more customer-friendly options, including the use of digital channels for the purpose of periodic updation of KYC details of customers.

Banks and financial services institutions are being advised that no punitive restriction on operations of customer account(s) shall be imposed till 31 December 2021.

Utilization of Floating Provisions

Banks are being allowed to utilize 100% of floating provisions/countercyclical provisioning buffer held by them as on 31 December 2020 for making specific provisions for non-performing assets with prior approval of their Boards. Such utilisation is permitted with immediate effect and up to 31 March 2022.

OD for States Governments

To enable the state governments to better manage their fiscal situation, the 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. This facility will be available up to 30 September 2021.

Boost To Health Infra

According to Sameer Narang, Chief Economist, Bank of Baroda, RBI announced a slew of measures to boost health care spending (Rs 500bn on-tap facility), last mile credit delivery to small borrowers (Rs 100bn), restructuring for MSMEs, individual borrowers and liquidity for state governments. To give a boost to India’s health infrastructure, RBI announced a three-year Rs 500bn special on-tap facility for onward lending to hospitals, vaccine suppliers, laboratories, manufacturers and individuals. While GST collections did hit an all-time high in March 2021, tax collections are likely to move down as local restrictions bite. Centre and states will have to continue to spend on purchasing health equipment and vaccines.

Sachin Sachdeva, Vice President & Sector Head – Financial Sector Ratings, ICRA, said priority sector tag to small finance banks’  lending to smaller micro finance institutions is likely to provide additional liquidity support to MFIs, which have been facing challenges in funds raising so far.

Mr.Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, says RBI has taken proactive accommodative measures to provide relief to the financial sector and to the borrowers. While no fresh blanket moratorium has been provided for covid 2.0, banks have been permitted to restructure smaller loans of exposure less than Rs250 million (OTR 2.0) which have been standard as on March 2021. Further, for loans under OTR 1.0, the terms can be modified to enhance the moratorium period for a maximum of 2 years. Also, the liquidity in the financial system will be maintained at a comfortable level with RBI proposing to buy G-SECs up to Rs350 bn under GSAP 1.0 in May 2021.

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