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RBI drafts a COVID fight plan, including term liquidity facility and support to small firms and borrowers amid second coronavirus outbreak

While the central government has refrained from imposing a nationwide lockdown, the economic costs of the second coronavirus outbreak are growing exponentially.

RBI governor Shaktikanta Das on Wednesday made an unscheduled announcement in the wake of the second bout of the COVID-19 outbreak, forcing states and local authorities to impose lockdown and restrictions to stop the spread of the virus. While the central government has refrained from imposing a nationwide lockdown, the economic costs of the second coronavirus outbreak are growing exponentially.

Keeping in view the economic difficulties wrought upon by the second wave of the COVID-19 crisis, RBI governor Shaktikanta Das announced a slew of measures aimed at alleviating the hardships endured by the people.

“RBI stand in battle readiness to ensure finance condition remain congenial and market function efficiently, we will work in close coordination with the government to ameliorate the impact,” Das said.

Rs 50,000 crores of liquidity facility announced by the RBI

The RBI governor announced that on-tap liquidity of Rs 50,000 crores at repo rate is being opened till March 31, 2022. Under this scheme, banks can support entities, including vaccine manufacturers, medical facilities, hospitals and also patients. The apex bank has also prioritised such lending till repayment or maturity.

Banks have been asked to create a COVID loan book under the said scheme. The governor said that banks can park liquidity equal to the COVID loan book at 40 basis points above the reverse repo rate. The RBI has announced a targeted long term repo operation for small finance banks of up to Rs 10,000 crore. The funds can be used for lending of up to Rs 10 lakh per borrower.

The Reserve Bank has also granted permission to the Small Finance Banks to on-lend to smaller microfinance institutions of asset size up to Rs 500 crore.

The RBI has also advanced the next G-SAP auction, adding that the second purchase of government securities for Rs 35,000 crore under G-SAP 1.0 will be conducted on May 20.

Assistance for the small firms and borrowers to tide over the adverse impact of the COVID-19 outbreak

With the pandemic taking a devastating toll on the country’s economy, the RBI has eased the burden on individuals and MSMEs by allowing one-time restructuring till September 30, 2021. This facility will be available for those having an aggregate exposure of Rs 25 crore. These borrowers should have been standard as of March 31, 2021, Das said, adding that under restructuring 1.0, the period of moratorium can be extended upto a total of 2 years.

The RBI governor also stated that banks have been permitted to use counter-cyclical provisions for making provisions for bad loans. Separately, the RBI has permitted limited KYC to be used till December 1, 2021.

In order to provide relief to state governments, the RBI has allowed them to remain in overdraft for a maximum of 50 days as compared to 36 days earlier. Furthermore, the number of consecutive overdraft days have been increased from 14 days to 21 days. This overdraft facility is related to funds that states may avail via the RBI’s ‘Ways and Means Advances’ facility.

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