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RBI’s Comprehensive Credit Support Measures Against the Second wave of COVID-19

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RBI Governor Shri Shaktikanta Das announced a series of measuresOn May 05, 2021, the Reserve Bank of India(RBI) announced a series of measures and Comprehensive strategies to support all stakeholders from the second wave of COVID-19 led economic difficulties.

Measures undertaken by RBI against the pandemic:

-Term Liquidity Facility of ₹50,000 crores to Ease Access to Emergency Health Services

i.RBI announced an on-tap liquidity window of Rs 50,000 crore with 3 years of maturity and at repo rate till March 31, 2022(End of FY22) under the priority sector lending classification.

ii.Banks could lend under this scheme for vaccine manufacturers; importers of vaccines and COVID related drugs manufacturers and suppliers of oxygen and ventilators; patients for treatment etc.

iii.To deliver loans to borrowers under this scheme banks will create a COVID-19 loan book and park their surplus liquidity in the book with the RBI under the reverse repo window at a rate that is 25 bps lower than the repo rate or, 40 bps higher than the reverse repo rate.

-Classification of SFB loan to MFIs for on-lending as PSL

RBI permitted the Small Finance Banks’ (SFBs) lending to Micro-Finance Institutions (MFIs) for on-lending to individuals under the classification of priority sector lending (PSL) for which the MFIs need to have Rs 500 crore asset size (Currently, the SFB’s PSL is not permitted for MFIs for on-lending).

  • This facility is made to be available up to March 31, 2022.

-Special Long-Term Repo Operations (SLTRO) for SFBs

To support small business, Micro, Small & Medium Enterprises (MSME), and unorganised sectors RBI introduced special three-year long-term repo operations (SLTRO) of Rs 10,000 crore at a repo rate for the SFBs.

  • SFBs could lend up to Rs 10 lakh per borrower till October 31, 2021.

-Resolution Framework 2.0 for COVID Related Stressed Assets of Individuals, Small Businesses and MSMEs

RBI allowed banks and non-banks to extend the restructuring loan benefits to individual customers, small businesses, and MSMEs through Resolution Framework 2.0.

  • The loans could be availed (by those who availed and not availed re-structuring 1.0) for loan exposure up to Rs 25 crore.
  • The loans which are classified as Standard (on March 31, 2021) are allowed to extend up to September 30, 2021.
  • Moratorium (for loans under Resolution Framework 1.0) extended up to a total of 2 years from less than 2 years.

-Rationalisation of Compliance to KYC Norms

In order to enhance customer convenience, RBI rationalised certain components of the extant KYC norms.

i.Extension of V-CIP: The scope of video KYC i.e. V-CIP – (video-based customer identification process) was extended for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of Legal Entities.

ii.Conversion: Allowed the conversion of limited KYC accounts into fully KYC-compliant accounts (For accounts that are opened on the basis of Aadhaar e-KYC authentication in non-face-to-face mode).

iii. Enabled the use of KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP.

iv.Introduced the use of digital channels for the purpose of periodic updating of KYC details of customers.

About KYC: It is a process under which banks gather their customers’ information while opening an account. It has to be updated at least once every 2 years (For high-risk customers), 8 years (Medium risk) and 10 years(Low-risk).

  • Now due to COVID-19, the pending periodic updation of KYC was provided with a time extension till 31 December 2021.

-RBI allowed the utilisation of 100% floating provisions for non-performing assets

Banks are allowed by RBI to utilise 100 percent floating provisions/counter-cyclical provisioning buffer held by them as of December 31, 2020, for making specific provisions for non-performing assets (with prior approval of their Boards). The utilisation is allowed up to March 31, 2022.

What is Floating provisions/counter-cyclical provisioning?

It refers to the specific amount that banks need to set aside in good times above the mandatory provisioning requirement as prescribed by RBI and these will be used only in contingencies or extraordinary times of economic or system-wide downturns. Banks have started building such reserves since 2010.

-RBI Increased State Governments’ OD Facility Tenor to 50 days

To support State Governments to manage their fiscal situation, RBI has increased the maximum number of days of the OverDraft (OD) facility in a quarter from 36 to 50 days and the number of consecutive days of OD from 14 to 21 days.

  • Availability –  up to September 30, 2021
  • Note – The Ways and Means Advance (WMA) limits of states have already been enhanced on April 23, 2021. Click here to know more

-Credit flow to MSME Entrepreneurs

In February 2021 Scheduled Commercial Banks were allowed to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR) to incentivise the credit flow of MSME borrowers.

  • Now the exemption is extended till December 31, 2021.
  • Note – This exemption is available for loans up to Rs 25 lakh and credit disbursed up to the fortnight ending October 1, 2021.

-RBI Announced 2nd G-Sec Purchase under G-SAP 1.0 for Rs 35,000 crore; G-sec
Yields Softens

RBI announced the second government securities(G-sec) purchase under G-SAP 1.0 for an
amount of Rs.32,000 crore on May 20, 2021. This purchase announcement leads the yield
on the benchmark 10-year bond to fell below the crucial 6 percent mark.

  • The first purchase of Rs.25,000 crore was held on April 15, 2021, under G-SAP 1.0
    and it has contributed to softening of G-sec yields which in turn contributes to the
    softening of the corporate bond yields and the private sector borrowing in the
    market. Click here to know more.
  • Under the liquidity adjustment facility (LAF), the average daily net liquidity
    absorption was at Rs 5.8 lakh crore in April 2021.
  • Currently, RBI is focusing on channelising its liquidity operations to support growth
    at the grass-root level.

Recent Related News:

On April 15, 2021, RBI formed the second Regulations Review Authority (RRA) named RRA 2.0 to Streamline its Regulations and Reduce Compliance. M Rajeshwar Rao, Deputy Governor was appointed as the head of RRA 2.0.

On April 7, 2021, the Reserve Bank of India (RBI) extended the membership of Centralised Payment Systems (CPSs) facilities such as National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS) to non-bank payment system operators.

About Reserve Bank of India(RBI):

Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
Governor – Shaktikanta Das
Deputy Governors – Mahesh Kumar Jain, Michael DebabrataPatra, M Rajeshwar Rao, and T Rabi Sankar (appointed on May 2021)