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RBI guides to relief during the pandemic

As per reports, shri Shakti kanta das, governor reserve bank of India on 5th of May announced a rs 50,000 crore on tap liquidity facility to ramp up health infrastructure and an additional loan restructuring scheme with a series of measures to help the financial services industry time over the second corona virus wave which has bought a threat to the economic recovery. As per Mr. Dash, this is done with respect to the ongoing crisis in the country due to the onset of the second wave. The country is in the foothills of strong recovery after the impact of the first covid wave that has struck the nation in the 2020. It’s the economic situation that has also altered drastically with the rise of infection. 

To this entire situation, dash added that RBI will continue to monitor the emerging situation using the resources. India has flattened the inflation curve but the situation has now altered. He also added that the quarantine facility of the RBI will continue to operate with more than 200 officers working away from their homes. He also announced that the second purchase of the G-SEC for rs 35,000 crore under G-SAP 1.0 will be conducted on the 20th of May 2021. Among the liquidity measures, he also announced on tap liquidity window of rs 50,000 crore with the tenure of up to 3 years. This bears a rapo rate being opened till 31st of March 2022. RBI also announced targeted long term rapo operation for small finance banks of up to rs 10,000 crore. This will be used for lending up to rs 1 lakhs per borrower. He said that during the darkest moments which we are focusing on the light. It’s necessary that we learn from what we faced last year and once we came together with better results we can easily overcome the challenges that are imposed by the first wave. It’s the faith which should be like an ever burning lamp and not only give us light but also should illuminate the surrounding.

The restructuring under the proposed frame work that can be invoked up to September 30th 2021 and the banks will have to implement it within 90 days of invocation. The lenders can review the working capital limits of the small businesses and MSMEs as one time measure. Those who availed earlier window of restructuring can be given an additional two years of moratorium.

Loan restructuring 2.0:-

The borrowers both individuals and MSMEs with an exposure to around 25 crore and those who didn’t avail the earlier facilities and where loans are standard as on march 31t 2021 are considered eligible for restructuring the same in the second round till the September 2021. It was in February 2021, the scheduled commercial banks were allowed to deduct the credit disbursed to the new MSME borrowers from their net demand and time liabilities (NDTL) for calculating the cash reserve ratio as being said by the RBI governor.

It’s the D- street may be disappointed with financial impact of announcements:-

The announcement made by the RBI governor didn’t include blanket moratorium and hence some of these fears didn’t come out to be true. Even the banking stocks didn’t sell off. The small businesses and MSME borrowers have been given a chance to extend their payment schedules. Around rs 50,000 cr term liquidity for health care sector is welcome but unlikely to benefit many listed out players. The overall of the street might be disappointed with the financial impact of the announcement. But the given scale of the pandemic is must. We can also expect more such announcement with moving forward. The overall welcome proactive move is taken by the RBI officials.

Mr. Das on the 5th day of may announced rs 50,000 crore on the tap liquidity facility. It must not be mistaken that the one is to ramp up the health infrastructure and an additional loan restructuring scheme with a series of measures to help with a series of measures to help the financial services industry tiding over the second corona virus wave which has threatened the economic recovery.

Generally for the borrowers with an exposure up to rs 25 crore and those haven’t taken the help of the facilities earlier and loans that are standard on march 31st 2021 will be eligible for restructuring the second round. The restructuring under the proposed framework can be invoked up to 30th September 2021 and the banks are going to implement it within 90n days of invocation. The lenders can easily review the working capital limits of small businesses and others medium scaled enterprises as one time measure. The RBI further is going to take small but best and precautionary steps to look ahead to the monetary issues to monitor the emerging situations and take necessary steps further. Last year, the impact of the lockdown was not seen on any of the banks earning because of the emergency measures that are announced by the central bank as well as the government. The RBI announced six month moratorium and subsequent onetime restructuring facility for the banks. Indeed with reports, it’s said that the process would help to escape a huge spike in their non performing assets. A loan becomes an NPA if there is no repayment of interest or principal for 90 days. Once the loan becomes an NPA, banks need to set aside money to cover the potential losses from such accounts high provisions hurt banks profitability.

Compared to the first wave, the financial services industry is better prepared this time. Most bank have steadily increased the amount of provisions to counter with any possible COVID shock and have ramped up their digital capabilities to reach out to the customers as physical contact which risky. The banks have also addressed the stress on the mid and large corporate book, at least with a significant part of it, either by pushing them to the NCLT or using the onetime restructuring facility that was announced by the RBI last year

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