RBI's new policy initiative is more in line with the announcements made under the restructuring 1.0 scheme last year. Most of the announcements are an extension of the earlier scheme and in continuation with the old measures. They aim to provide liquidity to the stressed sectors. Besides, it also supports individual borrowers and MSMEs facing the financial crunch.
Liquidity Boosting Measures
Under the new policy announcement, the RBI has initiated several steps to increase credit flow to specific sectors. It includes (A) liquidity of Rs 50,000 crore towards building health infrastructure, classified under priority sector lending. (B) Small Finance Banks (SFBs) would have access to Rs 10,000 crore for fresh lending up to Rs 10 lakh/borrower, and (C) Lending by SFBs to Micro Finance Institutes with AUM of up to Rs 500 crore can be classified as PSL till FY2022.
In support of MSMEs, the RBI has (a) Extended the limit of the restructuring 1.0 scheme till Q2FY22 for standard loans. (b) Modification to the restructured loans will also be possible, extending the residual tenor of loans by two years. And (c) Working capital can also be reassessed based on the current business environment.
The RBI has also extended a restructuring scheme for retail and MSME borrowers to support the affected sectors. The RBI has allowed banks to restructure loans of individual borrowers of up to Rs 25 crore. And restricted the benefits of the scheme to only those who didn’t use this facility earlier. Also, the repayment records need to be clear as of March 31, 2021.
A Mere Extension of Old Scheme
A close study reveals that the new measures are merely an extension of the restructuring scheme 1.0, which was announced last year.
Based on the data from loan restructuring scheme 1.0, it can be said that the usage of these schemes has been low. It suggests the reluctance on the borrower's side to take advantage of these schemes. After receiving a tepid response from corporate towards restructuring, new incentives are more targeted towards retail borrowers and MSMEs this time around.
Offtake for the ECLG Scheme has been slower than expected. It has prompted RBI to extend the date of closure of this scheme. It has also allowed the expansion of the scheme towards health infra and several other stressed sectors in the MSME space.
Incentives, Not Enough?
A Kotak Institutional report suggests that larger private banks better utilized the restructuring 1.0 scheme as compared to mid-tier regional banks, NBFCs. Even public banks have been quite reluctant to use this scheme that possesses the worst asset quality. It largely proves a lack of interest in the restructuring scheme.
The tepid response to the old scheme casts a shadow over the success of the new one as there are no new provisions made. In fact, it is an extension of the old scheme towards different sectors.
Hence, there are enough reasons to doubt the success of the scheme. And, it is duly reflected in the banking trends over the last few quarters where banks have remained reluctant towards lending to the stressed sectors despite the several incentives offered by RBI,