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RBI announced Covid 2.0 measures: Liquidity and credit support, ease stress through restructuring

Taking into consideration the current surge in covid cases and the related business disruption, the Reserve Bank of India has announced measures to: 1) provide immediate liquidity to ramp-up healthcare facilities, 2) support the smallest and the most vulnerable segments; and 3) ease the financial stress in the system.

The announced measures reflect the regulator’s commitment to deploy resources and instruments to ensure financial stability in the system and continuous monitoring of the situation. Measures announced being first part of a calibrated, targeted and comprehensive strategy of swift-footed and wide-ranging actions instills confidence. Also measures are sequenced and well-timed to reach out to the vulnerable sections of society and business (small businesses and financial entities at grass-root level).

Resolution framework 2.0 for borrowers with aggregate exposure of Rs250mn and reassessment of moratorium period for earlier restructured pool is a welcome move to address the incremental stress. However, resolution framework 1.0 was co-existing with moratorium benefit and requirement to restructuring has been limited that earlier envisaged. Also, incentivising banks for credit flow into ramping healthcare infrastructure is the need of the hour. Liquidity support to SFBs to the tune of Rs100bn is significant (10% of their advance base).

* Creating covid loan book – liquidity to ramp-up healthcare infrastructure: To provide immediate liquidity for ramping-up covid-related healthcare infrastructure, on-tap liquidity window of Rs500bn with tenors of up to 3 years at the repo rate being opened till March 31, 2022.

* Banks can 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.

* Banks are incentivised for quick delivery of credit through the extension of PSL classification for lending up to March 31, 2022 till repayment or maturity, whichever is earlier.

* Also, banks can deliver these loans directly or through intermediary financial entities regulated by the RBI.

* As an additional incentive, such banks will 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 40 bps higher than the reverse repo rate.

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This is the need of the hour to ensure financing support to healthcare infrastructure. Incentivising through PSL classification, higher rate on equivalent surplus liquidity and indirect delivery are steps in the right direction. Banks will also tend to be more proactive in lending for this purpose.

* Resolution framework 2.0 –

New restructuring proposal applicable to borrowers with aggregate exposure of up to Rs250mn o Borrowers i.e. individuals (for personal loans) and small businesses and MSMEs having aggregate exposure of up to Rs250mn and who have not availed restructuring earlier and who were classified as ‘Standard’ as on March 31, 2021 shall be eligible to be considered under Resolution Framework 2.0. o Restructuring under the proposed framework may be invoked up to September 30, 2021 and will have to be implemented within 90 days after invocation.

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