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Business EconomyPosted at: May 5 2021 9:40PM


RBI unveils a bouquet of innovative measures: Measures now transcend economic health & move to public health

Kolkata, May 5 (UNI) In the backdrop of the surging COVID-19 second wave, RBI made
important emergency announcements to support the fight against the COVID-19 pandemic
and support the economy in general, said Dr. Soumya Kanti Ghosh, Group Chief Economic
Adviser, State Bank of India
He said the broad macroeconomic background for this announcement is still the one
presented in the Monetary Policy Statement issued in April 2021. However there are some
concerns evident on inflation from the statement, predominately emanating from spike in
global commodity prices. The loss on account of second wave is expected to be lesser as
business resilience in wake of the disaster has improved since last time. Businesses have
learnt to survive despite Covid restrictions and containments.
Mr Ghosh said the measures today are largely addressed to health sector and dedicated
funding has been extended to the sector. A special on-tap liquidity of ₹50,000 crore with tenor
up to 3 years at repo rate for lending for emergency healthcare required to fight Covid crisis,
to various entities like vaccine manufactures, hospitals/dispensaries, pathology labs,
manufactures and suppliers of oxygen and ventilators, importers of vaccines and COVID
related drugs among others and even patients for treatment has been announced. The macro
impact of the scheme can be gauged from the fact that ₹50,000 crore is roughly 9% of India’s
total health expenditure of Rs 6 lakh crore under private final consumption expenditure in
2019-20. A direct support to the sector will generate total output demand of roughly
Rs 80,000 crore. The sectors to benefit include organic chemicals, rubber, plastics among
others where the limit utilisation is close to 55%.
He said small finance banks (SFBs) is another segment that has received special attention.
RBI has given liquidity support of Rs 10,000 crore to the SFBs, under a special three-year
long-term repo operations (SLTRO) at repo rate till 31 Oct’2021. Further, RBI has allowed
SFBs to lend MFIs for on-lending (with asset size of up to ₹500 crore) under priority sector
lending (PSL).
In respect of banking sector, RBI has extended provision to deduct credit disbursed to
‘New MSME borrowers’ from their NDTL for calculation of the CRR till 31 Dec’21. If we go
by ECLGS numbers, we estimate that banks will be able to lend around ₹30,000 crore fresh
loans to MSMEs and estimated that banks will save CRR of ₹1,000 crore from the fresh
loans to the MSME units, Mr Ghosh said.
He said RBI has also announced a restructuring resolution framework 2.0 for individuals,
small businesses and MSME borrowers having an aggregate exposure of upto Rs 25 crore,
and not availing restructuring under any of the earlier restructuring frameworks and classified
as Standard. Further, RBI has allowed banks to utilise 100% of floating
provisions/countercyclical provisioning buffer held by them as on 31 Dec’20 for specific
provisions for NPAs, with immediate effect and up to 31 Mar’22.
" We however expect banks are unlikely to use such provisions as banks provisioning
coverage ratio is already close to 85% as on Dec’20. More importantly, the last tranche
of 0.625% of the Capital Conservation Buffer has already been deferred from 30 Sep’20
to 01st Oct’21 easing a capital requirement of around ₹65000 crore at system level,"
Mr Ghosh said.
To support the states, RBI has already enhanced the Ways and Means limit from a
recommended Rs 47,010 crore to Rs 51,560 crore for all States/ UTs and this shall continue
for six months i.e., up to 30 Sep’21. Also, the number of days for which a State/ UT can be
in overdraft in a quarter has been increased to 50 working days from the current stipulation
of 36 working days. With varying degrees of stress in states’ finances due to COVID-19,
these moves will provide states with the succor to manage their borrowings, he added.
UNI BM
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