In an unscheduled address, the Governor said that the situation in the country has reversed from being on foothills of strong economic recovery to facing a fresh crisis.
The Reserve Bank of India (RBI) on May 5 announced several measures to protect small and medium businesses, individual borrowers from the adverse impact of the intense second wave of COVID-19 across the country.
It has also made provisions for banks to advance loans to businesses and restructure loans for enhancing liquidity in the system to help mitigate the crisis.
The RBI announced a Resolution Framework 2.0 for COVID-related stressed assets of individuals, small businesses and MSMEs and also expressed its resolve to do everything at its command to ‘save human lives and restore livelihoods through all means possible’.
Considering that the resurgence of COVID-19 pandemic in India has made individual borrowers, small businesses and MSMEs most vulnerable, the RBI has allowed borrowers i.e. individuals and small businesses and MSMEs having aggregate exposure of up to ₹25 crore, who have not availed restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework 1.0 dated August 6, 2020), and who were classified as ‘Standard’ as on March 31, 2021, eligible to be considered under Resolution Framework 2.0.
Restructuring under the proposed framework may be invoked up to September 30, 2021 and shall have to be implemented within 90 days after invocation.
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 two years, lending institutions have been 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.
In respect of small businesses and MSMEs restructured earlier, lending institutions have been permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins.
Purchase of G-secs
The RBI announced that it will undertake a purchase of government securities of ₹35,000 crore in the next two weeks under the newly introduced GSAP-2.0.
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, it has decided to conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at repo rate for the Small Finance Banks, to be deployed for fresh lending of up to ₹10 lakh per borrower. This facility will be available till October 31, 2021.
Lending by SFBs to Micro- Finance Institutions (MFIs) for on-lending will be classified as Priority Sector Lending.
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 on-lending to individual borrowers as priority sector lending. This facility will be available up to March 31, 2022.
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 over draft (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 September 30, 2021. The Ways and Means Advance (WMA) limits of states have already been enhanced on April 23, 2021.
In an unscheduled address, RBI Governor Shaktikanta Das said that the situation in the country has reversed from being on foothills of strong economic recovery to facing a fresh crisis.
“Restoring livelihoods has become an imperative,” he said. “We do not expect any broad deviation in our projections,” Mr. Das added.
He said that the RBI will continue to monitor the COVID-19 situation in the country, and will deploy all resources under it.
The RBI Governor said that the normal monsoon forecast will help contain food price inflation. Mr. Das said that the IMD forecast of a normal monsoon is expected to sustain rural demand and overall output in 2021-22. It will also have a soothing impact on inflation pressures, he added.
Mr. Das said “the second wave, though debilitating, is not unsurmountable. As I have said earlier, it is during our darkest moments that we must focus on the light. We have lessons to draw from our experience of last year, when as a nation we came together and overcame the once-in-a-generation challenge imposed by the first wave of the pandemic.”
Stating that the RBI stands in battle readiness to ensure that financial conditions remain congenial and markets continue to work efficiently he said, “We will work in close co-ordination with the Government to ameliorate the extreme travails that our citizens are undergoing in this hour of distress. We are committed to go unconventional and devise new responses as and when the situation demands.”