RBI’s Measures to Fight Covid "EMPOWER IAS"

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Recently, the Reserve Bank of India (RBI) announced a series of measures to support the nation’s fight against the second wave of Covid-19 infections. The measures form the first part of a calibrated and comprehensive strategy against the pandemic.Earlier in 2020 also the RBI took measures to help deal with the economic fall out of the pandemic.

Term Liquidity Facility announced

Reserve Bank of India stepped in on Wednesday with measures aimed at alleviating any financing constraints for healthcare infrastructure and services reeling under the second Covid wave.
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.

Measures for individual and MSME borrowers

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.
RBI unveiled a Resolution Framework 2.0 for COVID-related stressed assets of individuals, small businesses and MSMEs.
To provide further support to small business units, micro and small industries, and other unorganised sector entities 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.

Measure for States

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, the RBI said.

Priority Sector Lending:

Small Finance Banks (SFBs) are now permitted to regard fresh on-lending to Microfinance institutions (MFIs) with asset size up to Rs. 500 crore, as priority sector lending.
This facility will be available up to 31st, March 2022.

Credit flow to MSME Entrepreneurs:

To further incentivize inclusion of unbanked Micro, Small and Medium Enterprises (MSMEs) into banking system, exemption provided in February, 2021 wherein scheduled banks were allowed to deduct credit given to new MSME borrowers from Net Time & Demand Liabilities for calculation of Cash Reserve Ratio (CRR), is now extended to 31st December, 2021.

Stress Resolution Framework 2.0:

This Framework is to relieve stress faced by most vulnerable categories of borrowers – namely individuals, borrowers and MSMEs.
Individuals, borrowers and MSMEs who have not availed any restructuring will be eligible to be considered under Resolution Framework 2.0.
For individuals and small businesses who have availed restructuring of loans under Resolution Framework 1.0, lending institutions can now extend residual tenure up to a total period of 2 years.
Lending institutions are now permitted to review working capital sanction limits, as a one-time measure.

Floating Provisions and Countercyclical Provisioning Buffer:

In order to mitigate the pandemic related stress on banks and as a measure to enable capital conservation, banks are being allowed to utilise 100% of floating provisions held by them as 31^st December, 2020, for making specific provisions for Non-Performing Assets (NPAs).
Countercyclical provisioning buffers and floating provisions broadly refer to the specific amount that banks need to set aside in good times above the mandatory provisioning requirement as prescribed by RBI, these are used only in contingencies or extraordinary times of economic or system-wide downturns. Banks have started building such reserves since 2010.

Relaxation of Overdraft Facility for States:

To enable the State governments to better manage their fiscal situation in terms of their cash flows and market borrowings, 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 is available up to 30^th September, 2021.
Earlier, the Ways and Means Advance (WMA) limits of states were enhanced.

Rationalization of Knowing Your Customer (KYC) Norms:

The RBI has also decided to extend the scope of video KYC (know-your-customer) or V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of legal entities.