RBI Governor Speech Highlights: RBI Restructuring Relief For Small Borrowers; Liquidity Boost For Healthcare

In order to provide relief for state governments, the RBI has permitted them to remain in overdraft for a maximum of 50 days compared to 36 days earlier. The number of consecutive overdraft days have been increased from 14 days to 21 days.

This overdraft facility pertains to funds states may avail via the RBI’s ‘Ways and Means Advances’ facility.

• Borrowers, including individuals and MSMEs, permitted one-time restructuring till September 30, 2021. This facility will be available for those having an aggregate exposure of Rs 25 crore.
• These borrowers should have been standard as on March 31, 2021.
• Under restructuring 1.0, the period of moratorium can be extended upto a total of 2 years, Das said.
• Banks have been allowed to use counter-cyclical provisions for making provisions for bad loans.

Separately, the RBI has permitted limited KYC to be used till December 1, 2021.

• On-tap liquidity of Rs 50,000 crore at repo rate is being opened till March 31, 2022. Under the scheme banks can support entities including vaccine manufacturers, medical facilities, hospitals and also patients.
• Such lending will get priority sector classification till repayment or maturity.
• Banks to create a Covid loan book under the scheme.
• Such banks can park liquidity equal to Covid loan book at 40 basis points above the reverse repo rate.
• The RBI has announced a targeted long term repo operation for small finance banks of upto Rs 10,000 crore. The funds can be used for lending of upto Rs 10 lakh per borrower.
• SFBs permitted to on-lend to smaller microfinance institutions of asset size upto Rs 500 crore under priority sector.

Second purchase of government securities for Rs 35,000 crore under G-SAP 1.0 will be conducted on May 20, RBI Governor Das said.

The situation has altered drastically over the past month, said Governor Das. The current situation has to be matched with policy actions which are calibrated, sequenced and well-timed.

The outlook for the global economy is highly uncertain and subject to downside risks, Das said, setting the stage for the announcement of a fresh set of measures. In India, the second wave and restrictions and containment measures are likely to impact aggregate demand, particularly from the high-contact services sector, Das said.

However, the dent in aggregate demand is likely to be moderate compared to a year ago, Das said. The inflation trajectory over the year will be shaped by the Covid second wave, he added. “We do not expect any broad deviations from the MPC statement in April,” Das said.

We are committed to staying “unconventional” and the RBI will continue to take small and big steps through the year.

The scope for monetary policy to step in is limited. The benchmark repo rate is low at 4% even though inflation has shown signs of volatility. The stance of monetary policy also remains accommodative. At its meeting in April, the MPC said it would hold that stance “as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.”

Liquidity conditions also remain surplus. As on April 30, the outstanding banking system liquidity surplus at Rs 5.14 lakh crore.

Given the staggered but rolling nature of business disruption seen across the economy, bankers have requested the RBI to re-open its one time restructuring scheme.

BloombergQuint reported earlier this week that the regulator is considering relief for retail and small business borrowers and mulling the option to open the restructuring window until Sept. 30. The support is essential for small borrowers who have been impacted by localised lockdowns announced by a number of states, bankers have argued.

The first restructuring scheme had been announced in August 2020 and closed in stages between December 2020 and March 2021.

Reserve Bank of India Governor Shaktikanta Das is making an unscheduled statement at 10 a.m.

The governor’s comments come against the backdrop of a second wave of Covid cases, which have led local state governments to announced lockdowns and restrictions on normal movement. While the central government has stayed away from a nationwide lockdown, the economic costs of the Covid second wave are growing.