Small borrowers get RBI’S Covid vaccine
FRESH ROUND OF RESTRUCTURING FOR LOANS UP TO ₹25 CRORE ₹50,000 CRORE LIQUIDITY WINDOW FOR HEALTH CARE
The Reserve Bank of India (RBI) on Wednesday announced a Covid package of ~50,000 crore for vaccine makers, medical equipment suppliers, hospitals, and even patients in need of funds to treat the disease, while opening up another round of restructuring of loans for individual and small borrowers for up to two years.
The RBI also said it would be buying ~35,000 crore of bonds from the secondary market on May 20. This will be part of the ~1 trillion Government Securities Acquisition Programme (G-SAP) scheduled for the quarter, of which ~25,000 crore has already been done. Yields reacted positively to the RBI measures and the 10-year bonds dropped below 6 per cent.
RBI Governor Shaktikanta Das announced these and other measures in an unscheduled press conference on Wednesday morning, in the first concrete effort by a central agency to fight the stress brought forward by the rising second wave of Covid.
“The immediate objective is to preserve human life and restore livelihoods through all means possible,” Das said, adding, “We are committed to go unconventional and devise new responses as and when the situation demands.” The central bank stood in “battle readiness” to ensure that financial conditions remain congenial and markets continue to work efficiently.
The ~50,000 crore emergency health services loans, which can be given by banks till March 31, 2022, will be classified as priority sector loans for three years or repayment, whichever is earlier.
THE IMMEDIATE OBJECTIVE IS TO PRESERVE HUMAN LIFE AND RESTORE LIVELIHOODS THROUGH ALL MEANS POSSIBLE. THE SECOND WAVE IS NOT UNSURMOUNTABLE” SHAKTIKANTA DAS, RBI GOVERNOR
Priority sector loans are exempted from maintaining cash reserve or statutory liquidity ratios, and so banks can extend them at concessional rates too.
Moreover, banks can avail of the funds at repo rate, currently at 4 per cent, for providing fresh loans to a wide range of entities related to Covid care. Banks can lend this amount directly, or through intermediaries, and should create a `Covid loan book’ under the scheme.
To incentivise the lenders, the RBI said banks would be eligible to park their surplus liquidity up to the size of the Covid loan book with the RBI at repo rate minus 25 basis points, or at 3.75 per cent. Presently, banks park their excess funds at the reverse repo rate, which is 3.35 per cent. “The interesting part here is that as the RBI believes that the impact this time will be less than that of last year, there will probably be no announcement of a moratorium as of now. Depending on the evolving circumstances there can be more measures expected from the RBI in the coming months," said Madan Sabnavis, chief economist of Care Ratings.
According to Kaushik Das, chief India economist of Deutsche Bank, the measures announced were only the first step while “it is reasonable to expect more regulatory measures in the upcoming June policy and thereafter, depending on the evolving Covid-19 trajectory and macro situation.”
However, Deutsche Bank doesn’t expect any immediate
measures from the government as the RBI measures were taken after consultation with banks and the government.