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In a surprise announcement, the central bank announced several measures to help the country ramp up its healthcare infrastructure to deal with the second wave of Covid. It also announced steps to help the beleaguered MSME and financial services sectors of the Indian economy.
In future, this could well be termed the first dose of Stimulus 2.0 to deal with the devastation that the second wave of the Covid pandemic has left in its wake.
Surprising both industry and the stock markets, the Reserve Bank of India (RBI) announced a slew of measures to help Indian industry, especially the healthcare sector, deal with the unprecedented crisis. It also announced steps to help micro, small and medium enterprises (MSMEs), which account for about 20 per cent of total employment, 29 per cent of GDP, 45 per cent of total manufacturing output and 40 per cent of the total exports from the country, deal with the liquidity crunch they are facing.
Addressing an unscheduled press conference, RBI Governor Shaktikanta Das said the Indian, which was in a good position at the end of the first wave of Covid in 2020, is facing challenges as the “situation has been altered drastically” in the wake of the second wave of the pandemic.
“In a few weeks, the situation has altered drastically. New mutant strains have emerged putting pressure on healthcare. The fresh crisis is still unfolding. India has ramped up efforts to save lives. The RBI will continue to monitor the evolving situation… has to be matched with policy actions which are calibrated, sequenced and well-timed,” he said.
The most important measure announced by Das was a $6.7-billion on-tap liquidity window for the healthcare sector with a tenor of up to three years at the repo rate up to March 31, 2022.
Targeted schemes are the way forward
In an article titled “Modi govt unlikely to announce a fiscal stimulus package anytime soon”, India Global Business had said there is little fiscal room for a large stimulus and that the government would depend on targeted schemes to help those sectors of the economy most in need of emergency support.
The RBI’s announcements are precisely that: Measures targeted at boosting India’s health infrastructure at a fast pace and easing norms to make it easier for MSMEs and other important segments of the economy shrug off the impact of the pandemic.
The most important measure announced by Das was a $6.7-billion on-tap liquidity window for the healthcare sector with a tenor of up to three years at the repo rate up to March 31, 2022.
Under this scheme, banks can provide fresh loans to companies engaged in manufacturing, imports and supplies of vaccines, Covid-related medicines, medical devices and oxygen generators. Such on tap lending facilities will also be available to hospitals, pathology laboratories and dispensaries. Further, individuals can also avail of loans under this window to cover a part of the cost of treatment.
Banks have been reluctant to pass on the benefits of many schemes to borrowers... To deal with this, RBI has extended priority sector classification for these loans up to March 31, 2022.
This measure is expected to help Indian industry ramp up the country’s health and medical care infrastructure at a rapid pace to deal with the Covid crisis.
But banks have, in the past, been reluctant to pass on the benefits of many schemes to borrowers for fear of these loans turning delinquent and, thus, adding to their non-performing asset (NPA) burden.
Customers with loans of up to $3.4 m who haven’t restructured their loans earlier and whose loans were being serviced on schedule till March 31, 2021 can restructure their loans.
To deal with this problem, the RBI has extended priority sector classification for these loans up to March 31, 2022. These loans will continue to be classified under the priority sector till repayment or maturity, whichever is earlier, Das announced.
There’s more. "Banks are expected to create a Covid loan book under the scheme. By way of an additional incentive, such banks will 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 which is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate," said Das.
He also announced a loan restructuring scheme that is expected to help the financial services sector, which has borne the brunt of the second wave of Covid, sail over the choppy waters they find themselves in.
Customers with loans of up to $3.4 million who haven’t restructured their loans under any earlier scheme and whose loans were being serviced on schedule till March 31, 2021 can, if they so desire, restructure their loans. This window will remain open till September 30, 2021. Banks will have to restructure the loans within 90 days.
Together, these measures are expected to offer the targeted sector some respite from the ravages they have been facing over the past month and a bit and help them tide over these difficult times.
According to market grapevine, this could be the first of several such targeted measures that the government and RBI will announce in the coming weeks and months to help the Indian economy recover quickly and get back on the high growth trajectory.