Summary of RBI measures proposed to be taken amid second wave of Covid-19 pandemic on May 05, 2021

The Reserve Bank of India (RBI) vide Governor’s Statement dated May 05, 2021 has announced certain measures proposed to be taken amid the second wave of Covid-19 pandemic. The details of the proposed measures have been summarised as under:

1. Term Liquidity Facility of ₹50,000 crore to Ease Access to Emergency Health Services.

  • To boost immediate liquidity, on-tap liquidity window of ₹50,000 crore with tenors of up to three years at the repo rate to be opened till March 31, 2022.
  • Banks to provide fresh lending support to a wide range of entities including vaccine manufactures; importers / suppliers of vaccines and priority medical devices; hospitals / dispensaries; pathology labs; manufactures and suppliers of oxygen and ventilators; importers of vaccines and COVID related drugs; logistics firms and also patients for treatment.
  • These loans to be classified under priority sector till repayment date or maturity, whichever is earlier.
  • Banks to ensure quick delivery of credit under the scheme through extension of priority sector classification to such lending up to March 31, 2022 and Banks shall create a COVID loan book under the scheme
  • Additionally, such banks shall be eligible to park their surplus liquidity 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, termed in a different way, 40 bps higher than the reverse repo rate.

2. Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs).

  • To support small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct SLTRO of ₹10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to ₹10 lakh per borrower.
  • This facility to be available till October 31, 2021.

3. Lending by Small Finance Banks (SFBs) to MFIs for on-lending to be classified as Priority Sector Lending

  • SFBs to reckon fresh lending to smaller MFIs (with asset size of up to ₹500 crore) for on-lending to individual borrowers as priority sector lending.
  • This facility to be available till March 31, 2022.

4. Credit to Micro, Small, and Medium enterprise (MSME) Entrepreneurs

  • Previously, 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). This exemption was for exposures up to ₹25 lakh and for credit disbursed up to the fortnight ending October 1, 2021.
  • The above exemption has been extended till December 31, 2021.

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

The following set of measures are being announced, specifically targeting Individuals, Small Businesses and MSME groups of borrowers:

  • No restructuring availed under Resolution Framework 1.0 and classified as ‘Standard’ as on March 31, 2021 – Borrowers i.e. individuals and small businesses and MSMEs having aggregate exposure of upto ₹25 crore, shall be eligible to be considered under Resolution Framework 2.0. Such proposed restructuring framework may be invoked up to September 30, 2021 and shall have to be implemented within 90 days after invocation.
  • Restructuring availed under Resolution Framework 1.0 – In respect of individual borrowers and small businesses who have availed restructuring and the resolution plan permitted moratorium of less than two years, lending institutions are being permitted to use this window to modify such plans to the extent of increasing the period of moratorium and/or extending the residual tenor up to a total of 2 years. Other conditions shall remain the same.
  • Restructured earlier – In respect of such small businesses and MSMEs, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc.

6. Rationalisation of Compliance to KYC Requirements.

  • In order to rationalise certain components of the extant KYC norms following have been included:

i. extending the scope of video KYC known as V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of Legal Entities and for periodic updation of KYC;

ii. conversion of limited KYC accounts opened on the basis of Aadhaar e-KYC authentication in non-face-to-face mode to fully KYC-compliant accounts

iii. enabling the use of KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP and submission of electronic documents (including identity documents issued through DigiLocker) as identify proof

iv. introduction of more customer-friendly options, including the use of digital channels for the purpose of periodic updation of KYC details of customers

  • Regulated Entities are being advised that for the customer accounts where periodic KYC updating is due/pending, no punitive restriction on operations of customer accounts shall be imposed till December 31, 2021 unless warranted due to any other reason or under instructions of any regulator/enforcement agency/court of law, etc. Account holders are requested to update their KYC during this period.

7. Utilisation of Floating Provisions and Countercyclical Provisioning Buffer.

  • Banks allowed to utilise 100% of floating provisions / countercyclical provisioning buffer held by them as on December 31, 2020 for making specific provisions for nonperforming assets with prior approval of their Boards.
  • Such utilisation is permitted with immediate effect and up to March 31, 2022.

8. Relaxation in Overdraft (OD) facility for States Governments (SG)

  • The maximum number of days of OD in a quarter is being increased from 36 days to 50 days and the number of consecutive days of OD from 14 days to 21 days
  • This facility to be available up to September 30, 2021.

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Disclaimer- Every effort is made to avoid error or omission in the article. It is suggested to cross check all the facts, law and content with original government publication/notification. This article is for information purpose and not a formal opinion. No one should act on such information without appropriate professional advice. In no event the author shall be liable for any direct or indirect damage resulting from, arising out of or in connection with the use of the information.

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