The Reserve Bank of India (RBI) announced a slew of measures in order to safeguard small and medium businesses, individual borrowers from the adverse impact of the unprecedented Covid-19 situation during the second wave. As a part of the calibrated and comprehensive strategy to mitigate the crisis, RBI Governor Shaktikanta Das has announced ‘on tap liquidity’, in a bid to provide liquidity support to the public in general. Necessary provisions have been introduced for banks to advance loans to businesses to enhance liquidity in the system.
In an address, the RBI governor Shaktikanta Das stated that the current situation has to be matched with policy actions that are calibrated, sequenced and well-timed.
Calibrated & Comprehensive strategy to tackle the second wave
In his address, the RBI governor states that the measures and initiatives taken today, form the first part of the calibrated and comprehensive strategy against the pandemic.
- Term liquidity of Rs 50,000 crore for Emergency Health Services.
In order to ramp up Covid related healthcare infrastructure and services in the country, an ‘On-tap liquidity’ facility of Rs 50,000 crore has been announced. This term liquidity facility with a tenure of up to 3 years, at repo rate, is being opened till March 31, 2022, to ease access to emergency health services in India.
While delivering the virtual speech, he conveyed that under the scheme, banks can provide lending support to a wide range of entities including vaccine manufacturers, importers/suppliers of vaccines, hospitals & dispensaries, pathology labs, manufacturers & suppliers of oxygen and ventilators, importers of vaccine and Covid related drugs, logistics firms as well the patients for treatment.
- Resolution Framework 2.0
The resurgence of the Covid-19 pandemic in the country has led to disruption in economic activity due to certain restrictions. Hence, measures have been announced to relieve stress faced by the most vulnerable category borrowers including individuals, small businesses and MSMEs. Considering this situation, RBI has allowed borrowers (individuals, small businesses and MSMEs) having aggregate exposure of Rs 25 crore, who have not availed restructuring under any previous framework, and who were classified as ‘Standard’ as of March 31, 2021, will be eligible to be considered under Resolution Framework 2.0.
Earlier restructuring frameworks include the Resolution Framework dated August 6, 2020. In regards to individual borrowers and small businesses who have availed restructuring of loans under Resolution Framework 1.0, where a moratorium of less than 2 years was permitted; now, lending institutions have been allowed to use this window to increase or extend the period of moratorium up to a total period of 2 years.
- Rationalising KYC norms in view of Covid-19
In view of the Covid-19 situation in the country, RBI has also rationalised certain KYC norms for enhancing customer experience. These steps include introducing V-CIP (video-based customer identification process) for periodic updation of KYC for new categories of customers such as proprietorship firms. Converting limited KYC accounts to fully compliant KYC accounts along with introducing more customer-friendly options such as using digital channels for the purpose of periodic updation of KYC.
Highlights of the current economic situation: RBI governor
RBI governor in his address noted that the Covid-19 impact on the national inflation is comparatively lower than the first wave. He also stated that the manufacturing sector of India is one of the least affected sectors which will see a fast recovery once the pandemic stabilizes. Even in April 2021, merchandise imports and exports continue to witness robust growth performance, while domestic financial conditions will remain easy, given the abundance in surplus liquidity, as per the governor.
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