Motilal Oswal: RBI’s Key Relief Measures Significantly Cushion Systemic Asset Quality; Medium-Term Overhang May Remain 

Motilal Oswal Report

The Reserve Bank of India has announced a resolution framework for accounts adversely impacted by the Covid-19 outbreak.

However, it has prudently allowed only those accounts that were standard, but not in default for more than 30 days as of March 1, 2020, to be eligible for this.

The RBI also constituted an expert committee led by KV Kamath to suggest a list of financial parameters to be factored in the assumptions of the resolution plan and validate the resolution plan for all accounts above Rs 15 billion.

Furthermore, the RBI has extended the existing restructuring scheme for stressed micro small and medium enterprises up to March 2021. The scheme would be applicable for all accounts that were standard as of March 1, 2020.

We believe this would provide major relief for banks/non banking financial institutions, given the higher moratorium availed in the MSME segment.

The RBI has also announced other measures. (i) It increased the loan to cap for gold loan disbursements to 90% from 75%. This would be applicable to banks only and allowed up to March 21, 2021. (ii) An additional special liquidity facility of Rs 50 billion each would be provided to National Housing Bank and National Bank For Agriculture and Rural Development at the policy rate.

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