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RBI announces emergency measures to tackle COVID second wave

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The Reserve Bank of India (RBI) on Wednesday announced a slew of measures to help India tackle the unprecedented Covid-19 crisis during the second wave.

RBI Governor Shaktikanta Das started off his address by saying that the Indian economy was at an advantageous position after the first wave subsided in 2020, but added that the “situation has been altered drastically” in the wake of the deadlier Covid-19 wave that hit the country in April.

 

“In a few weeks, the situation has altered drastically. New mutant strains have emerged putting pressure on healthcare. The fresh crisis is still unfolding. India has ramped up efforts to save lives.

The RBI will continue to monitor the evolving situation,” Das said.

“The current situation has to be matched with policy actions which are calibrated, sequenced and well-timed,” he added.


RBI Governor Shaktikanta Das said the measures proposed today are part of the first round of calibrated and comprehensive strategy against the pandemic.

As part of the measures, the RBI eased lending and restructuring norms for all stakeholders, especially those smaller businesses and MSMEs that have been impacted by the second wave.

Priority lending facilities have also been announced for vaccine manufacturers and firms engaged in providing key medical supplies to hospitals during the pandemic.

The first measures announced by Das was ‘Term Liquidity Facility of Rs 50,000 crore to ease access to emergency health services. The RBI has also proposed “On-tap liquidity” of Rs 50,000 crore with tenor up to three years at repo rate, said the RBI governor.

“Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufacturers, importers and suppliers of vaccines and priority medical devices, hospitals and dispensaries, pathology labs, manufacturers and suppliers of oxygen and ventilators, importers of Covid-related drugs, logistics firms and also patients for treatment,” RBI governor said.

Banks will be incentivised for quick delivery of credit under the scheme through the extension of priority sector classification to such lending. This facility will be available till March 31, 2022.

These loans will be continued to classified under ‘priority sector’ till repayment or maturity, whichever is earlier.

The second measure relates to special long-term repo operations (SLTRO) for small finance banks (SFBs), which primarily lend to micro, unorganised and small industries. “It has been decided to conduct special 3-year long-term repo operations (3-year SLTRO) of Rs 10,000 crore at repo rate for SFBs,” Das said.

The facility will help them with fresh lending of up to Rs 10 lakh per borrowers and it will be available till October 31, 2021.

The RBI also added that SFBs lending to micro-finance institutions (MFIs) will be classified as priority sector lending. The classification has been proposed in view of the fresh challenges brought on by the pandemic and to address the liquidity problems faced by smaller MFIs.

Simply put, SFBs are now being permitted to lend to smaller MFIs with asset size of up to Rs 500 crore and this is likely to help lending to individual borrowers on priority. This facility will be available up to March 31, 2022.