RBI announces provisions to aid businesses in tackling second Covid-19 wave

With the second wave of Covid-19 impacting both small and medium businesses, RBI Governor Shaktikanta Das announced a series of measures to mitigate its effects.

May 5, 2021

RBI announced a Resolution Framework 2.0 for COVID-related stressed assets of individuals, small businesses and MSMEs.

Aiding healthcare stakeholders and manufacturers of medicines and medical equipment are the RBI’s priority areas

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 are eligible to be considered under the new scheme.

Small finance banks have been permitted to consider fresh lending to Micro Finance Institutions

Following a discussion with banks and BFCs about the current situation on liquidity, credit flow and balance sheets, RBI Governor Shri Shaktikanta Das laid out new steps as listed below to help businesses and individuals counter the pandemic. The following measures were announced during the Sh Shaktikanta Das’s unscheduled address on 5th May, 2021: 

­(i)  With an ‘on-tap’ liquidity of US$ 68.1mn at repo rate, banks will be enabled to aid healthcare stakeholders such as vaccine makers, hospitals, medical equipment makers as well as patients till March 31, 2022. Lending on account of the above reasons will be treated as priority sector lending till repayment or maturity. On this basis banks will be creating a special loan book.

(ii) Liquidity will be considered equal to their COVID loan books at 40 base points exceeding the reverse repo rate

(iii) A second purchase of government securities amounting to US$ 47.6mn will be made by RBI in two weeks.

(iv) A targeted long term repo operation up to US$ 136.2mn will commence for small finance banks with an upper limit of US$ 13.62 thousand per borrower.

(v)  Small finance banks are permitted to on-lend to smaller MFIs with an asset size of up to US$ 682.4mn.

(vi)  States are permitted to remain in overdraft for a maximum of 50 days by RBI, extending the earlier limit of 36 days and the consecutive overdraft days increasing to three weeks from the previous limit. Funds under the Ways and Means Advances will be treated as eligible for this measure.

(vii) Individuals and MSME borrowers can avail one-time restructuring till the 30th of September, 2021. This covers those having exposure of up to US$ 3.4mn, and those that were standard as of March 31 this year.

(viii) A two-year extension of the moratorium period under restructuring 1.0 has been made available.

(ix)  Counter-cyclical provisions for bad loan provisioning for banks have been made available. 

(x) KYC compliance will be rationalised and limited KYC can be used upto December 1, 2021. Certain categories will also be provided with video-based KYC will be provided for certain categories.

In addition to these measures, the RBI governor also highlighted  that India’s battle with the second wave of Covid-19 has brought a new set of challenges to the nation’s economic development, given  the uncertainty in global growth outlook. He emphasized that the immediate focus was to save lives and restore livelihoods of the people, while the RBI in turn would take all possible measures at its disposal to tackle the impact of the second wave.