What’s new in the new rescue package announced by the RBI Guv yesterday?

In an ‘unscheduled speech to the nation”, – there was little notice of it and its advent was only provided on Twitter yesterday morning – the Reserve Bank of India (RBI) governor Shaktikanta Das announced a long-overdue additional stimulus package for industry to combat the effects of the deadly second wave. 

Addressing the nation, the Hon’ble governor RBI very rightly reflected the mood of the nation referring to the impenetrable darkness that has engulfed the nation. He quoted an inspirational line from Mahatma Gandhi, “My faith is brightest in the midst of impenetrable darkness.” 

Appreciating the controls that had been used for keeping the pandemic in check in this country last year while it was ravaging several countries scattered all over the globe, he observed that India is now fighting a ferocious rise in infections and mortalities. He appreciated the frontline army of medical and Law enforcement personnel that have been ceaselessly working for over a year now. He also disclosed the existence of the RBI Containment cell where 250 RBI personnel work full time to ensure continuity of financial markets and RBI Operations. 

To this, we can also add the other unseen armies that have also been battling it out for all citizens on several fronts, namely transportation, food supplies, internet enablers, educators, utility services, these people who have been keeping the systems running when most of us were locked into our homes. 

With the total no of cases in India now having crossed 20 million, and deaths of more than 2.2 lakhs this announcement could not have come at a more appropriate moment as lockdowns and reverse migration rule the roost in several states. 

The relief announced yesterday covers a whole range of beneficiaries, from banks, MSMEs, small business units etc. It provides a whole basket of options to raise the liquidity and de-stress the economy.   

1. To boost the liquidity for ramping up healthcare anon-tap liquidity window of ?50,000 crores with tenors of up to three years at the repo rate is opened till March 31, 2022 –for manufacture, distribution, import and supply of vaccines, priority medical equipment for hospitals, dispensaries, Path Labs, medical-grade oxygen, ventilators, covid related drugs, and logistics.
2. Incentives to banks giving quick delivery of credit under this scheme – Banks will be maintaining a covid loan book for this scheme and will be able to park their surplus liquidity with the RBI at a rate 40 bps higher than the reverse repo rate.
3. To provide further support to small business units, micro and small industries, and other unorganised, fresh lending of up to ?10 lakh per borrower special three-year long-term repo operations(SLTRO) will be provided. For this, ?10,000 crores will be available up to October this year to be deployed.
4. Small finance banks (SFBs) are now being permitted to reckon fresh lending to smaller Micro-Finance Institutions (MFIs) (with asset size of up to ?500crores) for on-lending to individual borrowers as priority sector lending, up to March 31, 2022.
5. To further incentivise the inclusion of unbanked MSMEs into the banking system, Scheduled Commercial Banks are allowed another 3 months up to Dec 31, 2021, to deduct credit disbursed to new MSME borrowersfrom their net demand and time liabilities (NDTL) for exposures up to ?25 lakh and credit disbursed up to the fortnight ending October 1, 2021.
6. SBUs having exposure of up to Rs 25 Cr can avail a finance restructuring from Res Framework 1 to Res Framework 2, this will have to invoked by Sep 30 and completed by year end.
7. Small business units(a.k.a. MSME’s) having their loans with a moratorium of less than two years can now extend their tenor to a total of two years.
8. Lending institutions servicing small business unitslending institutions are also being permitted as a one – time measure, to review the working capital sanctioned limits, based on    a reassessment of the working capital cycle, margins, 
9. In the ongoing tussle between banks and customers regarding KYC compliance, the RB Guv clarified that no penal action will be taken by banks on KYC issues up to the end of 2021, customers will, however, be expected to handle all pending KYC issues by 31/12/2021.
10. Rationalisation of KYC norms allowing non-face-to-face mode, enabling KYC Identifier of Centralised KYC Registry, and submission of electronic documents(including identity documents issued through Digi Locker) as identify proof; (d) introduction of more customer-friendly options, including the use of digital channels for the purpose of periodic updating of KYC details of customers.
11. Banks are now being allowed to utilise 100 per cent of floating provisions/counter-cyclical provisioning buffer held by them as of December 31, 2020, for making specific provisions for non-performing assets with prior approval of their Boards. Such utilisation is permitted with immediate effect and up to March 31, 2022. 

These measures are expected to boost the ability of business entities to keep the wheels of the economy turning even as India fights to control the pandemic. But in the meanwhile, the RBI Guv reassured the nation. “We will work in close coordination with the Government to ameliorate the extreme travails that our citizens are undergoing in this hour of distress. We are committed to go unconventional and devise new responses as and when the situation demands… we will continue to be proactive throughout the year’. Coming from a bureaucrat, in a national address, is very heartening. Even if this assurance is followed in its breach minimally, it can make a huge difference to outcomes for families, professionals, businesses, and communities.  As citizens, we can only hope that a touch of empathy and compassion helps soften the impact of all that may come this year. 

The political timing of this announcement is also very curious indeed, coming as it does, on the heels of a defeat at the hustings, after a political campaign that will for long retain its place as one of the most bitter and acrimonious slugfests that this nation has ever seen and may ever see. 

The possibility does exist, however remote, that that this is a pacifier to help the recovery from that political loss, but for the common man, any easing of the burden he is expecting to endure this year is certainly welcome.