RBI Governor Shaktikanta Das announced Rs 50,000 crore liquidity for ramping up COVID-19 related healthcare infrastructure and services till March 2022.
He also announced special long-term repo operations for small finance banks to provide further support to micro, small & other unorganized sector entities and three-year repo operations of Rs 10,000 crore at repo rate for fresh lending up to Rs 10 lakh per borrower.
India was at foothills of recovery: RBI Governor
•The Governor noted that as the financial year 2020-21, the pandemic year, was drawing to a close, the Indian economy was advantageously poised, relative to peers.
•He said that India was at the foothills of a strong recovery, having regained positive growth and having flattened the infections curve.
•However, the situation changed drastically since then. He noted that India today is fighting a ferocious rise in infections and mortalities.
•He further stated that new mutant strains have emerged, which are causing severe strains on the healthcare and medical facilities, vaccine supplies and frontline health personnel. He said that the fresh crisis is still unfolding.
Restoring Normalcy Imperative
•The RBI governor stated that shoring up livelihoods and restoring normalcy in access to workplaces, education and incomes is imperative at this time.
•He assured that the RBI will continue to monitor the emerging situation and deploy all its resources in the service of the nation, especially the citizens and business entities that have been hit majorly by the second wave.
•He stated that the devastating speed with which the virus has affected different regions of the country has to be matched by swift-footed and wide-ranging actions in calibrated manner to reach out to various sections of the society and business, especially the smallest and the most vulnerable.
The devastating speed with which the virus affects has to be matched by swift and wide-ranging actions that are sequenced, calibrated and well-timed so as to reach out to various sections including the most vulnerable: RBI Governor
— ANI (@ANI)
May 5, 2021
RBI Governor hails Doctors/Nurses
•The RBI Governor expressed his gratitude to all the doctors, healthcare and medical staff, police and law enforcement agencies and other authorities who are battling the second wave selflessly and tirelessly and have been at the frontline of India’s battle against COVID-19 for more than a year.
•He emphasised that their services to the nation are needed now, more than ever.
•He stated that RBI’s quarantine facilities continue to operate with more than 250 RBI personnel and service providers, who are away from their homes, to ensure continuity of various segments of financial markets and RBI operations.
Assessment of the Current Global Economic Situation
•The RBI Governor noted that the global economy is exhibiting incipient signs of recovery as countries renew their growth, supported by monetary and fiscal stimulus. However, the activity remains uneven across countries and sectors.
•He said that the global economic outlook is highly uncertain and clouded with downside risks.
•In April 2021, the International Monetary Fund had revised up its global growth projection for 2021 to 6.0 percent, from 5.5 percent projected in January 2021, based on the assumption that vaccines would be available in advanced economies (AEs) and some emerging market economies (EMEs) by mid-2021 and in most other countries by the second half of 2022.
•The Consumer price index (CPI) inflation remained fine for advanced economies. In few emerging market economies, on the other hand, it remains to be above targets on account of firming global food and commodity prices.
•Further, the global financial markets regained buoyancy in April on vaccine optimism after bouts of volatility in February-March, followed by corrections.
India’s Economic Situation
•India’s aggregate supply conditions are underpinned by the resilience of the agricultural sector, said the RBI Governor.
•He further noted that the record foodgrains production and buffer stocks in 2020-21 helped 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.
•He further said that the forecast of a normal monsoon by the India Meteorological Department (IMD) is expected to sustain rural demand and overall output in 2021-22 and also have a soothing impact on inflation pressures.
•However, he said that the aggregate demand conditions, especially in contact-intensive services, are likely to see a temporary dip, depending on the COVID situation.
•He noted that households and businesses are still learning to adapt with restrictions and containment measures being localised.
•He noted that the dent to aggregate demand is expected to be moderate in comparison to a year ago, disruption in manufacturing units so far is minimal.
•The consumption demand is also holding up so far, with sales of consumer goods rising in double digits in January-March 2021.
•The Rail freight has registered growth of over 76 percent year-on-year in April.
Rail freight registered growth of over 76% yr on yr in April. Toll collections in April suggest mobility declined but unlike abrupt halt during April 2020. Automobiles registration in April 2021 shown moderation compared to March. Tractor segment continues robust pace: RBI Gov pic.twitter.com/B945yMEFXF
— ANI (@ANI)
May 5, 2021
•While mobility has declined, it is not the same as the abrupt halt in mobility during April 2020.
•Further, registration of automobiles in April 2021 has shown moderation compared to March.
•The tractor segment continues to grow at robust pace.
•The Purchasing managers’ index (PMI) for manufacturing also continues to expand at 55.5 in April 2021 compared to 55.4 in the preceding month.
•Overall, the high-frequency indicators have been emitting mixed signals.
•The RBI governor assures that RBI will closely and continuously monitor all incoming data to assess on a real-time basis the impact of the second wave on macro-economic and financial conditions.
•The CPI inflation edged up to 5.5 percent in March 2021 from 5.0 percent a month ago.
•While there has been softening in the prices of cereals and key vegetables, price pressures in pulses and edible oils remain.
•The prices of petrol and diesel registered some moderation in April, while manufacturing and services PMIs along with rising WPI inflation show persistence of input price pressure.
•A normal southwest monsoon is expected to help contain food price pressures, especially in cereals and pulses.
Normal monsoon should help contain food price pressures, especially in cereals and pulses. Merchandise imports and exports continue to witness robust growth performance, even in April 2021. Foreign exchange reserves give us confidence to deal with global spillovers: RBI Governor pic.twitter.com/w0GjsQZ1R0
— ANI (@ANI)
May 5, 2021
•Among other sectors, India’s merchandise exports and imports rose sharply in March 2021.
•The merchandise trade deficit shrank to US $98.6 billion for 2020-21 from US $ 161 billion a year ago.
•According to the Ministry of Commerce & Industry, India’s merchandise exports and imports continue to witness broad-based robust growth performance in April 2021.
•India’s Foreign exchange reserves also stood at US$ 588 billion on April 30, 2021.
RBI’s additional measures to support businesses and individuals amid COVID-19 second wave
Following are some of the measures that the RBI has undertaken to support growth impulses such as small businesses and financial entities at the grassroot level that are bearing the biggest brunt of the second wave of COVID-19-
i) RBI has announced Rs 50,000 crore liquidity for ramping up COVID-related healthcare infrastructure and services till March 2022.
ii) RBI is also opening an on-tap liquidity window of ₹50,000 crore with tenors of up to three years at the repo rate till March 31, 2022 to boost provision of immediate liquidity for ramping up COVID related healthcare infrastructure and services in the country.
Special long term repo operations for small finance banks to provide further support to micro, small & other unorganized sector entities,3-yr repo operations of Rs. 10,000 crore at repo rate, for fresh lending up to Rs 10 lakh per borrower;facility up to 31 Oct’ 21: RBI Governor
— ANI (@ANI)
May 5, 2021
iii) Under the scheme, banks will be able to provide fresh lending support to a wide range of entities including vaccine manufactures, suppliers or importers of vaccines and priority medical devices, pathology labs, hospitals/dispensaries and manufacturers and suppliers of oxygen and ventilators.
iv) The banks have also been incentivised for quick credit delivery under the scheme through extension of priority sector classification to such lending up to March 31, 2022.
v) These loans will be classified under priority sector till repayment or maturity, whichever is earlier.
vi) The Banks may deliver these loans to borrowers directly or through intermediary financial entities thatare regulated by the RBI.
vii) Further, the banks are expected to create a COVID loan book under the scheme.
viii) Banks will also be eligible to park their surplus liquidity up to the size of the COVID loan book with the RBI under the reverse repo window at a rate that is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate.
Special Long-Term Repo Operations for Small Finance Banks
•RBI has decided to conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to ₹10 lakh per borrower. This facility will be available till October 31, 2021.
•The move aims to provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic.
•The Small Finance Banks have also been permitted to regard fresh on-lending to MFIs with asset size up to Rs 500 crore, as priority sector lending, facility available up to 31 March, 2022.
•In February 2021, Scheduled Commercial Banks were allowed to deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio (CRR). This exemption currently available for exposures up to ₹25 lakh and for credit disbursed up to the fortnight ending October 1, 2021 is being extended till December 31, 2021.
RBI has also announced separate measures targeting the most vulnerable category of borrowers- individual borrowers, small businesses and MSMEs-
1. The individuals and small businesses and MSMEs having aggregate exposure of upto ₹25 crore and who have not availed restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework 1.0 dated August 6, 2020), and who were classified as ‘Standard’ as on March 31, 2021 shall be eligible to be considered under Resolution Framework 2.0. Restructuring under the proposed framework may be invoked up to September 30, 2021 and shall have to be implemented within 90 days after invocation.
2. The individual borrowers and small businesses who have availed restructuring of their loans under Resolution Framework 1.0, where the resolution plan permitted moratorium of less than two years, lending institutions are being permitted to use this window to modify such plans to the extent of increasing the period of moratorium and/or extending the residual tenor up to a total of 2 years. Other conditions will remain the same.
3. The lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits for small businesses and MSMEs, based on a reassessment of the working capital cycle, margins.
No penalty where periodic KYC updating is due
The RBI has advised regulated entities that for the customer accounts where periodic KYC updating is due/pending, no punitive restriction on operations of customer accounts shall be imposed till December 31, 2021.
Relaxation in State’s Overdraft facility
The RBI has permitted certain relaxations in the overdraft facilities of the state governments. The maximum number of days of OD in a quarter is being increased from 36 to 50 days and the number of consecutive days of OD from 14 to 21 days.
This will be available up to September 30, 2021. The Ways and Means Advance (WMA) limits of states have already been enhanced on April 23, 2021.