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Proactive measures by RBI to boost business & economy, no blanket moratorium a right decision: Experts

Most experts Moneycontrol spoke to feel the RBI has taken the right decision at the right time to deal with the COVID situation and provide liquidity support.

May 05, 2021 / 02:28 PM IST
Source: Reuters

Source: Reuters

The Reserve Bank of India (RBI) on May 5 announced a slew of measures to help the financial services industry tide over the second coronavirus wave that threatens economic recovery.

"RBI has continued to show its commitment to remain dovish and accommodative till the uncertainty of COVID prevails," said Devang Shah, Co-Head-Fixed Income at Axis AMC.

India is currently in the middle of the second wave of COVID that has once again brought life to a virtual halt. Lockdown like restrictions in several states pose a serious threat to the economy, which had just started to show green shoots of recovery after a fierce round one with the virus. As a result, global and domestic rating agencies have lowered their FY22 growth estimates of India.

The healthcare system of the country is under severe stress as cases continue to mount up day on day. India accounted for nearly half of the COVID-19 cases reported worldwide last week and one in four deaths, the World Health Organization (WHO) said on Wednesday.

"In the fight against the second wave, alleviating any constraint from the financing side for all stakeholders requires a comprehensive targeted policy response," said the RBI governor Shaktikanta Das in his statement on May 5.


Read: RBI Governor Shaktikanta Das launches second round of loan restructuring, other relief measures to counter Covid second wave

He said small businesses and financial entities at the grassroot level are bearing the brunt of the second wave of infections. Against this backdrop, and based on continuing assessment of the macroeconomic situation and financial market conditions, the RBI proposed to take more measures including a liquidity facility of Rs 50,000 crore to ease access to emergency health services, special long-term repo operations (SLTRO) for small finance banks (SFBs), credit to MSME entrepreneurs, and resolution Framework 2.0 for COVID related stressed assets of individuals, small businesses and MSMEs.

Most experts Moneycontrol spoke to feel the RBI has taken the right decision at the right time to deal with the COVID situation and provide liquidity support.

"RBI's decision to avoid giving a blanket moratorium seems to be the right one given the localised lockdowns & micro containment zones unlike strict countrywide lockdown last year. The measures would help enhance credit to medical/health infrastructure and provides flexibility to banking system to recast loans to give case-specific relief to small borrowers, MSMEs and individual borrowers," said Gaurav Dua, Head Capital Market Strategy at Sharekhan by BNP Paribas.

Overall, the measures are focussed on easing liquidity issues for lenders, soften credit cost and boost credit cycle, he added.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said Das reassured the nation and markets that the RBI would be proactive to ameliorate the pain and help businesses & boost the economy.

"Term liquidity of Rs 50,000 crore as on-tap liquidity for access to the emergency health facility, 3-year targeted long term repo operations (TLTRO) for small finance banks, another instalment of G-SAP of Rs 35,000 crore, lending by SFBs to MSMEs to be classified as priority sector lending... are all timely steps in the right direction,' he explained.

The fact that there is no moratorium announcement will be seen by the markets as positive since the message is that the situation is not as bad as to warrant another moratorium, he added.

Nifty50 rose 67.90 points to 14,564.40, and the BSE Sensex gained 237.12 points at 48,490.63 at the time of writing this article. Bank Nifty gained a percent.

Liquidity for COVID related healthcare infrastructure and services

To boost provision of immediate liquidity for ramping up COVID related healthcare infrastructure and services in the country, an on-tap liquidity window of Rs 50,000 crore with tenors of up to three years at the repo rate is being opened till March 31, 2022, said the governor.

Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufactures; 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 and also patients for treatment, Das said.

Banks are being incentivised for quick delivery of credit under the scheme through extension of priority sector classification to such lending up to March 31, 2022. These loans will continue to be classified under priority sector till repayment or maturity, whichever is earlier, he added.

"The three-year facility is a good measure to immediately help ramp up medical and healthcare facilities. The benefits of this will help enhance capacity for the longer term as it covers diagnostic, preventive as well as combative aspects of healthcare. The smaller entities like micro finance institutions also benefit from the current package, which will bring some relief to them," said Joseph Thomas, Head of Research at Emkay Wealth Management.

Resolution Framework 2.0, Special SLTRO for SFBs, Lending by SFBs to MFIs classified as Priority Sector Lending

Das also 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 crore.

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.

"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.

Read: RBI Governor announces COVID-19 relief measures under Restructuring Resolution Framework 2.0

"Reopening of one-time restructuring of loans for individuals and MSMEs amounting up of Rs 25 crore is a fantastic move to support banks and NBFCs having exposure in retail segment. Additionally, declaring priority sector lending (PSL) status for lending by SFBs to small MFIs of asset size upto Rs 500 crore and targeted LTRO of Rs 10,000 crore for SBFs bode well for SFBs," said Binod Modi, Head Strategy at Reliance Securities.

Read: Small finance banks on-lending to MFIs to be categorised as priority sector

Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses, said Das.


To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das said, adding that the facility will remain open till October 31, 2021.

Read: RBI Governor Shaktikanta Das announces SLTRO for small finance banks

At present, lending by small finance banks (SFBs) to micro-finance institutions (MFIs) 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. This facility will be available up to March 31, 2022," said the RBI governor.

"We believe that announcement of second tranche of Rs 35,000 crore purchase of government's bond under G-SAP 1.0 is likely to result in further softening of bond yields. Overall announced measures certainly bode well for banks and NBFCs," Modi said.

Read: RBI Governor Shaktikanta Das announces second purchase of govt securities worth Rs 35,000 crore under G-SAP 1.0

Sharekhan feels the RBI announcements are positive for healthcare companies including vaccine & COVID treatment drugs, path labs etc. "Also, the measures are positive for SSF & MFI as it provides low-cost liquidity. The flexibility to recast loans of small borrowers is also positive for banks in general," the brokerage said.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: May 5, 2021 02:28 pm

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