Teji Mandi Explains: RBI's stimulus - a step in right direction to mitigate COVID-19 impact
Mitesh Bhuvad

The Reserve Bank of India (RBI) has announced various relief measures to mitigate the impact of COVID-19 and subsequent lockdown announced by various states.

With this, the RBI has extended the one-time restructuring scheme, which was announced last year. It has now been extended only to stressed borrowers. This may include individuals, small businesses, and MSMEs having a total exposure of up to Rs 25 crore on account of the resurgence in COVID-19 cases.

Extension of Restructuring Scheme

Borrowers, classified as ‘standard’ as of 31st March 2021, will be eligible for restructuring under this Resolution Framework 2.0. The banks are given time till 30th September 2021 to invoke a resolution plan for the stressed accounts and implement it within 90 days from the invocation date. The scheme also allows the extension of the moratorium period up to a period of two years, in cases where it is not already provided.

Additional Liquidity Facility for SFBs

The central bank has also announced a special liquidity window to the tune of Rs 10,000 crore for small finance banks (SFBs). This facility will be provided through special three-year long-term repo operations (SLTRO).

The MSFs can use these funds for fresh lending with the largest ticket size of Rs 10 lakh per borrower. The window will be available till 31st October 2021.

COVID-19 Loan Book

RBI has also provided an on-tap special liquidity window of Rs 50,000 crore for banks. These funds will be utilized to improve healthcare infrastructure in India.

Other Important Announcements

RBI has also allowed banks to use 100% of floating provisions towards making specific provisions for NPAs till 31st March 2022. It will reduce the quantum of additional provisioning in coming quarters for banks.

It also announced that loans lent by small finance banks to MFIs, with an asset size up to Rs 500 crore, will be eligible for classification as ‘Priority Sector Loans’.

To incentivize credit flow to MSMEs (borrowing exposure of Rs 2.5m), SCBs are allowed to deduct credit disbursed from their NDTL calculation for CRR computation. This facility, currently available till 1st October 2021, has been extended till 31st December 2021.

Closing Comments

The RBI has announced these measures to provide relief to the most affected borrowers after the resurgence in COVID-19 cases. This will particularly address the issue of potential stress.

This restructuring scheme for retail borrowers is a necessary step. Most slippages during FY21 have come from retail and MSMEs, underscoring their vulnerability. The RBI has refrained from announcing a blanket moratorium. It will ensure that only the deserving borrowers get the benefit of the scheme.

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