India is witnessing a lot of stress on its economy due to the Covid-19 pandemic. Second wave of the pandemic has badly affected the country’s economic operations.
Health sector is facing pressure due to the challenge caused by the widespread corona virus outbreak. In order to support the crunch, the Reserve Bank of India has unveiled a host of measures by loosening the liquidity, to not only aid the health sector but also to ease the pain of small borrowers/units.
The RBI on Wednesday announced a package of Rs.50,000 crore with tenors of up to three years at the repo rate – four per cent for Covid related healthcare facilities and services
Fresh lending shall be given to vaccine makers, medical equipment suppliers, hospitals and dispensaries, pathology labs, manufacturers and suppliers of oxygen and ventilators, importers of vaccines and Covid-related drugs, logistics firms and the patients who need help for treating the disease. It has simultaneously opened restructuring of loans for individual and small borrowers for up to two years.
The RBI governor said that quick delivery of credit under the scheme through extension of priority sector classification is assured though the lending Banks up to 31st March 2022. Till repayment or three years maturity whichever is earlier, these loans shall be classified under priority sector. He said that the banks may deliver these loans to borrowers either directly or through intermediary financial institutions regulated by the RBI.
Priority sector loans are exempted from maintaining cash reserve or statutory liquidity ratios and so banks can extend them at concessional interest rates too.
He further added that the banks shall be eligible to park their surplus liquidity, as an additional incentive, up to the size of the Covid loan book with the RBI under the reverse repo window at a rate, which is 25 bps lower than the repo rate or to put it differently 40 bps higher than the reverse repo rate. The rate thus arrived at will be 3.75%. The banks should create a ‘Covid loan book’ under the scheme for this purpose. The banks presently park their excess funds at the reverse repo rate, which is 3.35 per cent.
The amount of Rs.50,000 crore is roughly 9 percent of India’s total health expenditure of Rs. 6 trillion.
The small businesses will be supported by a loan of Rs.10 lakh per borrower. These are three-year long-term repo operations of Rs.10,000 crore at repo rate for small finance banks. Due to this measure the small business units, micro and small industries and other unorganized sector entities will benefit which are severely affected by the pandemic.
Further, the MFIs with an asset size of up to Rs. 500 crores will get fresh funding from SFBs. The benefit shall extend to individual borrowers at concessional interest rates and repayments who fall under the priority sector lending. The facility shall be available till March 31, 2022.
The window remains open up to September 30 and the banks are required to do the restructuring within 90 days of receiving the request. The loans that were standard as on March 31 will be considered.
Those individual borrowers and small businesses that have already used this facility last year but have allowed restructuring of less than two years can demand to extend the limit for their repayment up to two years period.
When an account is categorized as stressed for not servicing loans for a month or two can avail of restructuring.
Banks were allowed to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities for the purpose of calculating the Cash Reserve Ratio. To Include the unbanked MSMEs this exemption is available at present for exposures up to Rs. 25 lakh and for credit reimbursed up to the fortnight ending October1,2021 which is being extended till December 31,2021.
The State Governments are to be given certain relaxations in Overdraft facilities to better manage the fiscal situation in their respective states. The maximum number of days of OD are increased from 36 to 50 days and the number of consecutive days of OD from 14 to 21 days. This extension shall be available up to September 30,2021.
Smrutirekha Bhoi