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RBI Gives Relief To Small Borrowers, Loans To Vaccine Makers, Hospitals

India added 3,82,315 virus cases over the last 24 hours to reach a total of 2.06 crore, while death toll rose by a record 3,780 to 226,188

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The RBI on Wednesday allowed certain individual and small borrowers more time to repay their debt and provided a Rs 50,000 crore special window to banks to lend to vaccine makers, hospitals and COVID-related health infrastructure as it looked to cushion the pandemic's blow to the economy.

The loan recast of up to two years will be available to individuals and small and medium enterprises that did not restructure their loans in 2020 and were classified as standard accounts till March 2021, RBI Governor Shaktikanta Das said.

This facility will be available to borrowers with a total exposure of Rs 25 crore.

As much as 90 per cent of the total borrowers will be covered by this restructuring, according to Indian Banks' Association.

Last year, the RBI had allowed banks to restructure loans of small borrowers by extending repayment period for up to 2 years.

In the present recast, banks have been allowed to restructure loans through means such as extending tenure or renegotiating interest rate.

Das said RBI will give Rs 50,000 crore of liquidity support to banks to lend to the healthcare sector, including vaccine manufacturers, importers/ suppliers of vaccines and priority medical devices, with tenors up to three years at the repo rate.

This facility will be available until March 31, 2022.

He also announced that RBI will buy Rs 35,000 crore of bonds under the Government Securities Acquisition Programme (G-SAP) -- India's version of quantitative easing -- on May 20.

Also announced was a special three-year long-term repo operation of Rs 10,000 crore for small finance banks (SFBs), and banks being allowed to maintain lower reserves for advances made to small borrowers.

Just as the economy appeared to be inching back to normalcy, India was hit by a second wave of infections in early April, prompting states and cities to restrict public movements and impose lockdowns, which have hit some businesses hard.

India added 3,82,315 virus cases over the last 24 hours to reach a total of 2.06 crore, while death toll rose by a record 3,780 to 226,188, health ministry data showed.

RBI has been meeting with bankers and shadow lenders (NBFCs) in recent weeks to discuss the economic situation, possible stress to balance sheets and credit flow in the system.

Bankers had reportedly asked the RBI for a three-month moratorium, particularly for retail and small borrowers.

S&P Gobal Ratings on Wednesday said the second wave of COVID inflections may derail a strong recovery in Indian economy and credit conditions. It went on to project a lower than previously anticipated GDP growth rate in different scenarios.

Against 11 per cent GDP growth it had projected March, S&P Ratings saw growth rate dropping to 9.8 per cent under the 'moderate' scenario where infections peak in May, and falling to as low as 8.2 per cent under 'severe' scenario under which caseload would peak only in late June.

Das said the central bank sees the outlook as 'highly uncertain' and clouded with downside risks, but does not see a major change to inflation forecast.

'As the financial year 2020-21 (April 2020 to March 2021) -- the year of the pandemic -- was drawing to a close, the Indian economy was advantageously poised, relative to peers. India was at the foothills of a strong recovery, having regained positive growth, but more importantly, having flattened the infection curve. In a few weeks since then, the situation has altered drastically,' he said.

'As in the recent past, the RBI will continue to monitor the emerging situation and deploy all resources and instruments..,' he added.

Industry welcomed the RBI move, saying it was well-timed and propitious as the pandemic is posing new challenges for the economy.

CII president Uday Kotak said the central bank has 'taken the financial sector battle against COVID 2.0 head on with a clear focus on protecting lives and livelihoods.' Moody's Investors Service said, 'In response to the worsening situation in India, the RBI has allowed for a one-time restructuring of loans to individuals and small businesses up to a loan size of Rs 25 crore. This measure is much milder than the blanket loan moratorium given last year and the proportion of restructured loans will be lower. Nevertheless, the need for this measure highlights the reemergence of downside risks to banks' asset quality.' On the economic outlook, the RBI governor said the global economy is exhibiting incipient signs of recovery but activity remains uneven across countries and sectors.

In India, the record foodgrains production and buffer stocks in 2020-21 provide food security and support to other sectors of the economy in the form of rural demand, employment and agricultural inputs and supplies, including for exports. But aggregate demand conditions, particularly in contact-intensive services, are likely to see a temporary dip.

A normal south-west monsoon, as forecast by the IMD, should help to contain food price pressures, especially in cereals and pulses, he said, adding the inflation trajectory over the rest of the year will be shaped by the COVID-19 infections and the impact of localised containment measures on supply chains and logistics.

Das further said under the Rs 50,000 crore term liquidity facility, banks are expected to create a COVID loan book.

RBI will conduct a special three-year long-term repo operations of Rs 10,000 crore at the repo rate for small finance banks which will be deployed for fresh lending of up to Rs 10 lakh per borrower. This facility will be available till October 31, 2021.

Das also announced rationalisation of certain components of the extant KYC norms, including extending the scope of video KYC for new categories of customers.

Other measures included relaxation in overdraft facility for state governments.

'The second wave, though debilitating, is not unsurmountable,' Das said. 'At the RBI, we stand in battle readiness to ensure that financial conditions remain congenial and markets continue to work efficiently. We will work in close coordination with the government to ameliorate the extreme travails that our citizens are undergoing in this hour of distress.'