RBI Governor Shaktikanta Das
Reserve Bank of India Governor Shaktikanta Das, on May 5, announced a set of fiscal measures to help individuals, small businesses and micro-finance institutions tide over the second wave of COVID-19 cases in the country.
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The measures included:
>> A second purchase of G-SEC for Rs 35,000 crore under G-SAP 1.0 will be conducted on May 20: Das also announced the second purchase of government securities (G-Secs) under the Government Securities Acquisition Programme (G-SAP) 1.0 to be conducted on May 20, 2021.
In the second purchase under G-SAP, the government will buy securities worth Rs 35,000 crore. The RBI had first announced G-SAP 1.0 in its monetary policy on April 7, 2021.
Usually, the central bank periodically purchases G-Secs through Open Market Operations (OMOs). With the introduction of G-SAP 1.0, the central bank made an upfront commitment to the markets that it will purchase bonds worth a specific amount along with announcing the advance calendar for purchasing G-Secs.
“The endeavour will be to ensure congenial financial conditions for the recovery to gain traction. For Q1 of 2021-22, therefore, it has been decided to announce a G-SAP of Rs One lakh crore,” the RBI had announced earlier when it launched G-SAP 1.0 on April 7.
>> On-tap liquidity of Rs 50,000 crore at repo rate is being opened till March 31, 2022: In a bid to boost India's health infrastructure amid the second COVID-19 wave, Das an on-tap liquidity window of Rs 50,000 crore with the tenor of up to three years at repo rate. The facility will be available till March 31, 2020.
He said that under the scheme, banks can provide fresh lending support to entities like vaccine manufacturers; importers/suppliers of vaccines and priority medical devices; hospitals/dispensaries; pathology labs; manufactures and suppliers of oxygen and ventilators; importers of vaccines and COVID related drugs; logistics firms. Additionally, patients can also be given fresh funds for their treatment, Das said.
>> Banks are incentivised to extend swift credit to weak sectors: To incentivise banks to ensure quick delivery of credit under the scheme, RBI has decided to extend priority sector classification for such lending up to March 31, 2022. These loans will continue to be classified under the priority sector till repayment or maturity, whichever is earlier, Das announced.
Banks may deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI.
"Banks are expected to create a COVID loan book under the scheme. By way of an additional incentive, such banks will be eligible to park their surplus liquidity up to the size of the COVID loan book with the RBI under the reverse repo window at a rate which is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate," the Governor added.
>> Restructuring resolution for borrowers up to Rs 25 crore: RBI announced fresh restructuring resolutions for individuals, small businesses and Micro, Small and Medium Enterprises (MSME) borrowers who have an aggregate exposure of upto Rs 25 crores.
The borrowers who have not availed restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework 1.0 dated August 6, 2020), and who were classified as ‘Standard’ as on March 31, 2021, shall be eligible to be considered under Restructuring Resolution Framework 2.0. The restructuring under the proposed framework can be invoked up to September 30, 2021, and banks have to implement it within 90 days of invocation.
"Those availing resolution 1.0 can have residual tenure extended to two years. Lenders can review working capital sanction limits for those availing 1.0," RBI Governor Shaktikanta Das said during the unscheduled announcement.
Further, the restructuring under the proposed framework can be invoked until September 30 and shall have to be implemented within 90 days of invocation.
"In respect of individual borrowers and small businesses who have availed restructuring of their loans under Resolution Framework 1.0, where the resolution plan permitted a moratorium of less than two years, lending institutions are being permitted to use this window to modify such plans to the extent of increasing the period of moratorium and/or extending the residual tenor up to a total of 2 years. Other conditions will remain the same," RBI said.
>> RBI will conduct three year long term repo operations for small finance banks with limit of up to Rs 10 lakh per borrower: Das announced that small finance banks were being permitted to regard fresh loans to microfinance institutions (MFIs), with asset size up to Rs 500 crore, for on-lending to individual borrowers as priority sector lending, amid the ongoing COVID-19 pandemic.
“At present, lending by small finance banks (SFBs) to microfinance institutions for on-lending is not reckoned for priority sector lending (PSL) classification. 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 Rs 500 crore – for on-lending to individual borrowers as priority sector lending,” Das said, adding that this facility will be available up to March 31, 2022.
>> RBI Governor Shaktikanta Das extends video KYC to proprietorship firms, authorised signatories: RBI announced rationalisation of the know your customer (KYC) compliance norms on May 5 as Governor Shaktikanta Das announced a string of measures to shore up financial institutions with the second coronavirus wave threatening economic recovery.
Das said, "Taking forward the initiatives of the Reserve Bank for enhancing customer convenience, it has been decided to rationalise certain components of the extant KYC norms."
It includes the extension of the scope of video KYC, known as the video-based customer Identification process (V-CIP) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of Legal Entities and for periodic updation of KYC.
The bank has also decided the conversion of limited KYC accounts opened on the basis of Aadhaar e-KYC authentication in non-face-to-face mode to fully KYC-compliant accounts, he said.
The use of KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP and submission of electronic documents, including identity documents issued through DigiLocker, proof of identity will also be enabled now.
The RBI governor also announced the introduction of more customer-friendly 10 options, including the use of digital channels for updating KYC details.
>> Relaxation in overdraft facility for state governments
Das’ speech comes amid a ferocious second wave of COVID-19 cases in India. Many states have introduced lockdowns and other COVID-induced restrictions, which could hurt the economy.
Experts earlier told CNBC-TV18 that the RBI Governor may announce relief measures like loan moratorium extension, one-time loan restructuring for small borrowers, additional liquidity relief, among others.
The RBI Governor on May 3 met the representatives of non-banking finance companies – micro-finance institutions (NBFC-MFIs) and the two industry associations — Sa-Dhan and MFIN (microfinance institutions network), Moneycontrol reported.
Deputy Governors MK Jain and MD Patra and other top RBI officials attended the meeting.
The microfinance industry has asked for restructuring of borrower loans and liquidity assistance.
Earlier, a section of senior banking industry officials said that the RBI may have to announce yet another round of loan moratorium scheme or similar relief measures for stressed borrowers if the lockdowns announced by various state governments in the wake of COVID second wave prolongs beyond the immediate future.
Most states, like Maharashtra, Delhi and Karnataka, have announced partial lockdowns or other restrictions in the face of increasing COVID infections. This has started to affect businesses, especially in the services sector. Such a scenario could eventually lead to loan defaults as the repayment ability of borrowers may get affected.
In 2020, the impact of the lockdown was not seen on banks’ earnings because of the emergency measures announced by the central bank and the government. The RBI announced a six-month moratorium and a subsequent one-time restructuring facility for banks.
This helped banks to escape from a huge spike in their non-performing assets (NPAs). A loan becomes an NPA if there is no repayment of interest or principal for 90 days. Once a loan becomes an NPA, banks need to set aside money to cover the potential losses from such accounts. High provisions hurt banks’ profitability.