RBI relief for small borrowers, loans for vaccine makers

It will be available to SMEs and those who did not restructure their loans in 2020

As in the recent past, the RBI will continue to monitor the emerging situation and deploy all resources and instruments

SHAKTIKANTA DAS, RBI governor

The Reserve Bank of India (RBI) on Wednesday allowed certain individual and small borrowers more time to repay debt and allowed banks to give priority loans to vaccine makers, hospitals and COVIDrelated health infrastructure as it announced support measures to cushion the pandemic’s blow to the economy.

The loan recast of up to two years will be available to individuals and small and medium enterprises that did not restructure their loans in 2020 and were classified as standard accounts till March 2021, RBI governor Shaktikanta Das said.

This facility will be available to borrowers with a total exposure of ₹25 crore.

He said the central bank will give ₹50,000 crore of liquidity support to banks for providing fresh lending to a wide range of entities including vaccine manufacturers, importers/suppliers of vaccines and priority medical devices, among others.

These loans of up to three years tenor will be obtainable at repo rate and will be available till March 31, 2022.

He also announced a calendar for bond-buying.

Just as the economy appeared to be inching back to normalcy, India was hit by a second wave of infections in early April, prompting states and cities to restrict public movements and impose lockdowns, which have hit some businesses hard.

India added 382,315 virus cases over the last 24 hours to reach a total of 20.6 million, while death toll rose by a record 3,780 to 226,188, health ministry data showed.

RBI has been meeting with bankers and shadow lenders (NBFCs) in recent weeks to discuss the economic situation, possible stress to balance sheets and credit flow in the system.

“As the financial year 2020-21 (April 2020 to March 2021) - the year of the pandemic - was drawing to a close, the Indian economy was advantageously poised, relative to peers... In a few weeks since then, the situation has altered drastically,” Das said.

MUMBAI: The Reserve Bank of India (RBI) unveiled fresh measures on Wednesday to help lenders tide over mounting bad loans and give some borrowers more time to repay their debts, as surging Covid-19 infections trigger strict lockdowns in several states.

The announcement by the RBI governor Shaktikanta Das came as the health ministry reported a record number of daily coronavirus-related deaths and more than 300,000 new infections for the 14th straight day.

The debt moratorium will be available to individuals and small and medium enterprises that did not restructure their loans in 2020 and were classified as standard accounts till March 2021, the RBI governor said in an unscheduled virtual address.

“Small businesses and financial entities at the grassroot level are bearing the biggest brunt of the second wave of infections,” Das said, as he announced several measures to enhance liquidity and boost lending to various needy sectors.

The moratoriums will be applicable to borrowers with a maximum total exposure of ₹25 crore, Das said.

“About 90% of the total borrowers fall under this limit so the restructuring can provide benefits to a large number of borrowers. We think these measures are enough for now,” said Sunil Mehta, chief executive officer of Indian Banks’ Association.

During the last financial year, the RBI had introduced a one-time restructuring plan for small borrowers and companies that allowed banks to extend repayment periods for up to two years.

Around 800,000 borrowers with total loans worth ₹1.2 lakh crore enlisted in that scheme. This translated to less than 5% of the total industry wide loan book, Mehta added.

Many businesses in India were still inching back to normalcy after a nationwide lockdown last year when the second surge of Covid-19 hit. As infections soar and more states impose restrictions on activity, some analysts have been downgrading their economic growth forecasts.

Das, however, said the hit to demand is expected to be moderate in comparison to a year ago as reports show that the disruption to manufacturing so far is minimal while consumption is holding up..

He also said he doesn’t expect any significant change to the RBI’s economic forecasts made in April, when it projected 2021/22 gross domestic product (GDP) would grow by 10.5%.

On inflation, however, Das sounded a cautious tone.

He said a normal monsoon will help sustain rural demand and overall output and ease food price pressures, but also noted that a build-up in input costs across sectors, driven in part by elevated global commodity prices, remains a concern.

A continued pick-up in inflation could potentially push the RBI towards raising interest rates as it is mandated by law to keep retail inflation within a 2-6% band.

The regulator also announced a special on-tap liquidity window of up to ₹50,000 crore for banks to lend to the health care sector with tenors up to three years at the repo rate. It will be available until March 31, 2022.

The central bank said banks will need to maintain a Covid loan book under the scheme and will also get a 40 basis point higher return over the reverse repo rate on surplus funds parked with the RBI, to the extent of disbursed loans.

“RBI has come out with suitable measures and has also assured the market that they are going to be proactive so that has helped,” said Mehta.

Among other steps, the RBI announced a special 3-year long-term repo operation of 100 billion rupees for small finance banks (SFB), saying their lending to microfinance institutions can be classified as a priority sector. It also allowed banks to maintain lower reserves for advances made to small borrowers.

The central bank also relaxed overdraft guidelines for state governments and said banks can utilise their countercyclical provisioning buffers held by them as of December 31, 2020, to make provisions for non-performing assets with prior board approval.

{ SHAKTIKANTA DAS } RBI GOVERNOR

Small businesses and financial entities at the grassroot level are bearing the biggest brunt of

second wave