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RBI Governor Shaktikanta Das says SFB loans to MFIs for on-lending now classified as priority sector lending

The facility will be available till March 31, 2022, RBI Governor Shaktikanta Das said.

May 05, 2021 / 11:57 AM IST
Reserve Bank of India (RBI) Governor Shaktikanta Das

Reserve Bank of India (RBI) Governor Shaktikanta Das

Reserve Bank of India (RBI) Governor Shaktikanta Das on May 5 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.

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

Das said that the RBI was monitoring the emerging developments related to the second wave of COVID-19 and its impact on the economy. The global economic outlook is highly uncertain and clouded with downside risks, Das observed.

A forecast of a normal monsoon by the India Meteorological Department is likely to help sustain rural demand and have a soothing impact on inflation pressures, Das said.

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The central bank governor also announced a Rs 50,000-crore on-tap liquidity facility to ramp up health infrastructure and additional loan restructuring schemes amid a series of measures to help the financial services industry tide over the second coronavirus wave that threatens economic recovery.

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

In April, ratings agency Moody’s flagged the risks to the economy on account of the second wave of novel coronavirus infections.

“The second wave of infections presents a risk to our growth forecast as the re-imposition of virus management measures will curb economic activity and could dampen market and consumer sentiment,” the rating agency said.

Earlier, S&P Global Ratings had also said that systemic risk in Indian banks is likely to remain high in the wake of the spike in COVID-19 cases and high proportion of weak loans.

In 2020, the impact of the nationwide lockdown was not seen on banks’ earnings because of the emergency measures announced by the central bank and the government. The RBI had announced a six-month moratorium and a subsequent one-time restructuring facility for banks. This had helped banks to escape a huge spike in their non-performing assets (NPAs).

India has been badly hit by the second wave of coronavirus infections as hospitals in several states are reeling under a severe shortage of oxygen, drugs, equipment and beds.

On May 4, India's tally of COVID-19 cases crossed the two-crore mark with over 50 lakh infections being added in just 15 days. The virus has claimed 2.22 lakh lives so far, as per health ministry's figures.

Follow Moneycontrol’s full coverage of the coronavirus pandemic here
Moneycontrol News
first published: May 5, 2021 10:39 am

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