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Quote on RBI announcement by Mr. Jyoti Roy, Angel Broking Ltd
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The RBI will also be conducting special long term repo auctions for small finance banks (SFB) of Rs. 10,000 crore at repo rate to be deployed for fresh lending of up to Rs. 10 lakh per borrower. Also the RBI has made a change in the regulations wherein any loans made by SFBs to smaller MFIs with asset size of upto Rs. 500 cr will now be classified as priority sector lending and will help SFBs to extend more loans to the micro borrowers.
The RBI has also announced a resolution framework 2.0 for Covid related stressed assets for individuals, small businesses and MSMEs. Individuals, small businesses and MSMEs having aggregate exposure of upto Rs. 25 crore and who have not availed restructuring earlier shall be eligible for restructuring their loans. The restructuring needs to be invoked by the 30th of September and will need to be implemented within 90days. Moreover the RBI has also allowed extension of moratorium for restructuring done under the resolution plan 1.0 for a period of upto 2 years.
Overall these measures announced by the RBI are a positive development especially for SFB’s. However we believe that the restructuring of loans and stress on asset quality for the banking sector will be largely dependent upon the duration of the second wave and the lockdowns. In case the lockdowns are only restricted to Q1FY22 and we see a gradual reopening of the economy from Q2 onwards then the stress on the banking system and asset quality should be limited. However in case the lockdowns extend well into a major part of Q2 also then there will be a build up in the banking system.
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