RBI Governor Highlights: RBI Governor Shaktikanta Das on Wednesday unveiled liquidity support measures amid rising Covid-19 cases in India. RBI Governor Shaktikanta Das said that the 2nd wave of COVID-19 in India has drastically altered the economic situation. He added that RBI will continue to monitor emerging situation, using all resources. India had flattened the inflation curve but the situation altered. He also added that the quarantine facility of the RBI continues to operate with more than 200 officers working away from their homes. He announced that the second purchase of G-SEC for Rs 35,000 crore under G-SAP 1.0 will be conducted on May 20, 2021. Among liquidity measures, he announced on-tap liquidity window of Rs 50,000 crore with tenure of up to 3 years at repo rate being opened till March 31, 2022. RBI also announced targeted long-term repo operation for small finance banks (SFBs) of up to Rs 10,000 crore. This will be used for lending of up to Rs 10 lakh per borrower. Das said that it is during the darkest moments that we must focus on the light. “We have lessons to draw from our experience of last year when as a nation we came together and overcame the once in a generation challenge imposed by the first wave of the pandemic,” Das said. “Our faith should be like an ever-burning lamp which not only gives us light, but also illuminates the surroundings,” Das concluded.
Given the extent of the second wave of the pandemic and the suffering it has caused, the Reserve Bank of India has announced some timely liquidity measures that will provide relief to the most vulnerable by ensuring credit flow to individuals, small businesses and MSMEs as well as giving them greater repayment flexibility/ extending loan tenures. Further, the Central Bank’s announcement on norms related to customer KYC, such as extending the scope of Video KYC in terms of including new categories of customers as well as new use cases will prove to be a game changer for the industry as a whole and is an extremely customer-friendly move Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd
The RBI Governor’s announcement did not include blanket moratorium and hence some of these fears did not come out to be true and Banking stocks did not sell-off. Small businesses and MSME borrowers have been given a chance to extend their payment schedules. Rs.50000 cr term liquidity for healthcare sector is welcome but unlikely to benefit many listed players. Overall the street may be disappointed with the financial impact of the announcement but given the scale of the pandemic, we can expect more such announcements going forward. Overall a welcome proactive move by the RBI Dhiraj Relli, MD &CEO, HDFC Securities
In response to the worsening situation in India, the Reserve Bank of India (RBI) has allowed for a one-time restructuring of loans to individuals and small businesses up to a loan size of INR250 million. 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. Srikanth Vadlamani, Vice President – Senior Credit Officer, Financial Institutions Group, Moody’s Investors Service
The markets appear to have taken the announcement in a positive light. It needs to be seen if this event can act as a basis upon which a floor to the market can be made. Keeping short-term volatility aside, there is a lot more of the upside to play for a few months and quarters down the line. The RBI’s measures are welcome and a much-needed step. The on-ground reality of the second wave is that businesses and economic activity have been grinding down. If there is non-existent and disjointed economic activity, special considerations such as a moratorium have to be invoked. The Bank Nifty is trading positively against the backdrop of news that is negative for them. It says a lot about the need of the hour. Harsh Agarwal, Co-founder, RAIN Technologies
RBI continues to play a proactive role in India’s effort to counter the macroeconomic impact of COVID-19. The on-tap liquidity facility of INR 50,000 crores for supporting healthcare infrastructure and the three-year special long term repo operations (SLTRO) of INR 10,000 crore for small finance banks are timely measures to combat COVID-19. RBI also continues to purchase government securities. It has clearly signalled its intent to keep adequate liquidity in the financial system. The markets have responded positively with pharmaceuticals and banking stocks being top gainers. Overall, given how the story is unfolding, pullbacks from market peaks can be utilized as buying opportunities. Mohit Ralhan, Managing Partner and Chief Investment Officer, TIW Private Equity
RBI measures will support the availability of credit to the healthcare sector which needs to ramp up significantly to address the Covid 2.0 challenges. Secondly, the restructuring option has been extended till Sep 2021 for retail and MSME borrowers with loans up to Rs 25 Cr apart from giving more flexibility to revise the terms of restructuring under OTR 1.0 – this will go some way in providing relief for the additional stress generated by the second wave. Thirdly, the access to funds for SFBs has been enhanced with the SLTRO of Rs 10,000 Cr at the repo rate which is expected to be deployed for lending to not only retail and micro businesses but also to smaller microfinance institutions that have been facing funding challenges. Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
ASSOCHAM today said RBI’s assertion to ”stand in battle readiness” and take ”unconventional” measures to deal with the raging second wave of coronavirus, along with a slew of reliefs to the small borrowers, including individuals are important confident building announcements by Governor Shaktikanta Das
RBI has actively stepped in to address the financial challenges arising due to the second wave of Covid crisis. Steps like INR 50,000cr term liquidity facility for healthcare, SLTRO for Small Finance Banks, second purchase of G-SEC for Rs 35,000cr are extremely important to boost the sentiments of people and industry as a whole. RBI has also recognized the challenges faced by individuals, small businesses, and MSMEs due to the lockdown and provided Resolution 2.0 measures for restructuring loans to small borrowers up to Rs 25 crore. Apart from individual borrowers, this will also provide major relief to the real estate-linked SME players, especially the people who supply input materials to the real estate sector. The real estate sector too needs a sentimental boost to keep up with the business momentum. Honeyy Katiyal, Founder of Investors Clinic
RBI has been very pragmatic in its approach towards handling the Covid crisis. While RBI has not announced a blanket moratorium today, stressed borrowers have been given a choice to opt for resolution if required. This will ensure that only those who genuinely need restructuring of their loans will approach the banks. At the same time, it will help counter financial stress in the system. As an integral part of India’s banking system with technology-led delinquency management, Creditas will also continue to guide individual borrowers on timely payments and opting for resolution mechanism if required, as mandated by RBI. Anshuman Panwar, Co-Founder, Creditas Solutions
RBI’s announcements today should be read in the context of their pro-activeness to allay any potential concerns around either MSME or MFI credit quality stress, as the 2nd wave of Covid has hit these segments. But we don’t find these to be such a big boost like last year’s announcements, especially the moratorium. To be fair, the RBI has already done the heavy-lifting last year by slashing rates to record lows and infusing a copious amount of liquidity in the system. Nitin Bhasin, Head of Research – Institutional Equities, Ambit Capital
The RBI governor in today’s speech reiterated their support in response to the current pandemic. He acknowledged that G-SAP has had its desired impact on keeping sharp yield moves in check and went on to announce 35,000 cr worth GSap for this month too (part of INR 1 lakh crore for Q1). Various liquidity measures for Small finance banks, MSMEs are very good initiatives to ease potential pain points for these sectors. While phased CRR hike has not been rolled back, the banking system continues to have sufficient liquidity, thus providing adequate anchor to short end rates as well. Markets will draw comfort from today’s inter policy announcement and gain comfort form the fact that the central banker may leave no stone unturned in extending monetary support to ward off this pandemic induced economic strain Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mahindra Asset Management Company
These measures along with the compliance measures which were announced by the Central Government in April 2021 are likely to provide some relief and liquidity boost to businesses and individuals amidst challenges faced by them during the lockdowns. However, there are two things which one needs to be cautious about- One, is whether the bank lending is likely to be strong following these measures because despite a host of liquidity measures from RBI in FY21, bank credit off-take was only 5.6% in FY21. Secondly, with mounting cases and several states releasing restrictions on a frequent basis, it will be interesting to see how significant any deviation (if any) in RBI’s economic growth and inflation outlook amidst the second wave of the COVID-19 pandemic will be. CARE Ratings
The additional measures announced by the RBI coupled with the announcement of the second tranche of the GSAP 1.0 program is likely to be beneficial to alleviate the constraints faced by a number of stakeholders in the economy from the financing side. The markets have also viewed these measures positively with the BSE Sensex rising by more than 200 points at around 12 PM while the bond markets have seen additional buying reflected by decline in GSec yields. CARE Ratings
The Reserve Bank is running some of its key operations from a 250-member-strong quarantine centre — a souped-down version of the war-room it had set up in mid-March last year, more than a week before the national lockdown, Governor Shaktikanta Das said on Wednesday.
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Overall, measures announced by the RBI are a positive development especially for SFBs. However we believe that the restructuring of loans and stress on asset quality for the banking sector will be largely dependent upon the duration of the second wave and the lockdowns. In case the lockdowns are only restricted to Q1FY22 and we see a gradual reopening of the economy from Q2 onwards then the stress on the banking system and asset quality should be limited. However in case the lockdowns extend well into a major part of Q2 also then there will be a build up in the banking system.Jyoti Roy – DVP- Equity Strategist, Angel Broking Ltd
This is a welcome announcement by the RBI, the one-time restructuring and extension of moratorium is definitely a welcome relief to an already stressed sector. MSMEs had just about recovered from the ramifications of last year’s pandemic and 2021 had begun on a more positive note for small businesses who were looking to scale up this year. However, the unexpected Covid surge and subsequent lockdowns is pushing the MSME sector to its limits. The new allowances will save many small businesses who in turn are our surest bet to economic recovery in India given MSME contributions to national GDP, exports and to job creation. Hardika Shah, Founder and CEO of Kinara Capital
RBI Governor Shaktikanta Das in an unscheduled speech today provided more liquidity support and a larger tranche of G-SAP 1.0. We think the RBI’s normalisation cycle is likely to be on hold, unless the outlook for growth improves. The steps should add to the liquidity support measures implemented since the emergence of the pandemic, which we estimated amount to more than INR14.2trn. Today’s measures follow some fiscal moves, including the allocation of INR260bn to reinstate the free food grain distribution scheme, aimed at benefiting 800mn people. Rahul Bajoria, Chief India Economist, Barclays India
RBI’s measures announced today have largely addressed the need of small borrowers, individuals as well as businesses, and MSMEs who have been amongst the worst affected in the second resurgence of Covid. Besides liquidity measures, easing lending to the above strata by extension of restructuring, boosting medical infrastructure through PSL recognition will help bring relief in the financial ecosystem. We believe small finance banks like Ujjivan, Equitas and MSME lenders such as DCB, City Union to benefit from some of these measures. Naveen Kulkarni, Chief Investment Officer, Axis Securities
In an attempt to jumpstart micro, small, and medium enterprises (MSME) in the country reeling under the second wave of the Covid impact, Reserve Bank of India Governor Shaktikanta Das on Wednesday announced multiple relief measures. The support largely centered around easing credit concerns for MSMEs, small businesses, and individuals.
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An announcement from the RBI Governor comes in at a time when the second wave of the pandemic is negatively impacting economic activities and threatens to derail the recovery witnessed in Q1CY21. Maintaining its stance of providing monetary support, the RBI Governor announced measures to support healthcare infrastructure, protecting the interests of small businesses, individual borrowers, and safeguarding the macro-economic fundamentals. The step to categorize Small Finance Banks’ on-lending to Micro Finance Institutions (MFIs) as priority sector lending will ensure liquidity for small businesses. Vikash Khandelwal, CEO, Eqaro Surety Private Limited
“We have witnessed the pandemic in the country very closely. I would term this second wave, a Tsunami and this relief from the RBI Governor today is truly a sizeable boost across all stakeholders in the Healthcare sector; Hospitals, Pharmaceuticals, Healthcare equipment manufacturers, Health-tech companies and also directly to the patients. We value this announcement and find it benevolent for the Healthcare sector. We assure to continue as one of the prime players in making country become- ‘ Healthy India’ and I am sure this way, the next decade, is the decade of Healthcare,’ said Dr Vivek Talaulikar, CEO at Global Hospital – Mumbai.
Reserve Bank of India Governor Shaktikanta Das, in his address today has proposed to provide restructuring options for the borrowers who are finding it difficult to repay loans on time. The new restructuring 2.0 options will be available to individuals and small businesses who had availed the restructuring earlier and even for those who had not availed it earlier.
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The battle with COVID-19 has prolonged over a year now and while the country was coping well until early this year, the second wave of infections in March has translated into significant loss of lives. Presumably on economic output, the dent will depend on the timeline of this wave and associated regional lockdowns. Hence, proactive measures by the RBI, at a juncture where most economic indicators until March 2021 are continuing to show improvement, are welcome and reassuring. Expansion of liquidity window particularly to the healthcare sector is a need of the hour. Besides, additional liquidity window and resolution mechanism for loan restructuring for small and medium business will cement their position to cope up with the adverse demand conditions created by this more severe wave of pandemic. We believe that the central bank will keep its guard on in the ensuing period and take steps as warranted by the evolving on ground economic situation. Rajani Sinha, Chief Economist & National Director – Research, Knight Frank India
The RBI has always been ahead of the curve, additional relief and liquidity measures were required post the second wave of COVID19 cases that broke out in April. The measures announced will support the funding requirements of the healthcare, medical facilities, beef-up vaccine manufacturing for domestic inoculation. MSMEs and individuals borrowers will benefit from the extension in the moratorium. The RBI’s intent to take further measures if need be to provide relief, focus on the post-COVID future will send the right signal for the markets. Nish Bhatt, Founder & CEO, Millwood Kane International
The Reserve Bank on Wednesday asked banks and other regulated financial entities not to impose any punitive restriction against customers for failure to update KYC till December end, in view of the second wave of coronavirus cases. The RBI has also decided to extend the scope of video KYC (know-your-customer) or V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of legal entities.
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We welcome the Reserve Bank of India’s move for one time restructuring of loans of upto ?25 crore for individuals and small businesses under Resolution Framework 2.0. Given the current COVID-19 situation and its impact on individuals and businesses, RBI could not have done otherwise. It is a welcome move and will help the financial ecosystem. Ravindra Sudhalkar, CEO, Reliance Home Finance
RBI announced key measures to support lending institutions across the categories, which are required to withstand the challenges from second wave of COVID-19 crisis. On tap liquidity window of Rs500bn for three years at repo rate to support healthcare chain and classifying this lending as priority sector lending (PSL) augurs well. Further, reopening of one-time restructuring of loans for individuals and MSMEs amounting up of Rs250mn is a fantastic move to support banks and NBFCs having exposure in retail segment. Additionally, declaring PSL status for lending by SFBs to small MFIs of asset size upto Rs5bn and targeted LTRO of Rs100bn for SBFs bode well for SFBs. We further believe that announcement of second tranche of Rs350bn purchase of government’s bond under G-SAP 1.0 is likely to result in further softening of bond yields. Overall announced measures certainly bode well for banks and NBFCs. Binod Modi, Head Strategy at Reliance Securities
The pressure on the short term premiums seems receding as May month premium fell from 45-48 paise to 32-34 paise after RBI calm down the nerves by sending a strong signal in favor of further flattening of the yield curve. The relief measures could support the ongoing chaos regarding COVID disruption in the financial activity and hence volatility in the Rupee could be under RBI’s control. The fall in cost of hedging the nearest future month will support the importers to take advantage of lower spot ahead of depreciating foresight for the May month Amit Pabari, managing director, CR Forex Advisors
Re-opening of the one-time restructuring will certainly provide much-needed relief to individuals and MSMEs impacted by the slow down caused by the second wave of the pandemic. In addition to this on tap liquidity and other measures for easing liquidity pressure will help in expansion of production capacities for manufacturers including those operating in the high-priority medical sector. Moin Ladha, Partner, Khaitan & Co
Given the potential ravaging impact of the 2nd wave of Covid-19 on the economy, extension of one-time re-structuring (OTR) under the restructuring scheme 2.0 will a more effective and beneficial remedy for both the lenders and borrowers rather getting into a bankruptcy situation under the Insolvency and Bankruptcy Act, 2016 (IBC). Also, currently, the economy is running on very thin ice. So, the OTR should help avoid any systemic risk which can easily slip through the cracks. Nishant Singh, Partner, IndusLaw
The RBI has incentivised banks to offer these facilities by including them within the PSL targets of banks, and also permitting them to deposit the surplus liquidity up to an amount equal to their “Covid Loan” book with RBI at a rate which is 40 basis points higher than the normal reverse repo rate. This will ensure that banks accelerate the provision of liquidity for emergency healthcare services so that India is better equipped financially to deal with the pandemic. Further, additional restructuring guidelines for to MSMEs, small businesses and individuals will assist them tide over the uncertainties caused due to the second wave. These guidelines, as well as the recently introduced pre-arranged insolvency resolution process, will enable MSMEs to restructure their debts without the looming fear of losing or liquidating their businesses. Aashit Shah, Partner, J Sagar Associates
The announcements made by RBI today will benefit the MSMEs and small businesses that have been adversely impacted by the second wave of the pandemic. They will also provide much-needed liquidity to the emergency healthcare sector to battle the proliferating spread of the virus. A new term liquidity facility for healthcare sector at the repo rate will aid in ramping up covid related healthcare infrastructure and production and supply of essential healthcare products such as vaccines, oxygen and ventilators. It will also benefit patients burdened by unaffordable covid related medical bills. Aashit Shah, Partner, J Sagar Associates
Extension of priority sector lending to the entities making a difference in these times will be a win for the borrowers and the banks, which will lead to meaningful deployment of funds towards causes which demand and require attention. Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co.
The crucial change is the expected extension of one-time restructuring as an option for individuals and MSMEs. Since December and what was seen at the Financial Year-end too, it was anticipated that some relief from asset downgrade for the borrower and provisioning requirements for the lenders, would be the need of the hour. Other entities would also seek similar extension, if not other concessions in due course. Focused special long-term repo operations for small finance banks, in addition to the measures to enable such banks to lend to the microfinance institutions is also a step in the right direction and reflects the efforts towards financial inclusion and access to liquidity in these times of stress. This will certainly be beneficial in the short run, in addition to allowing such institutions to tide over immediate liquidity crisis. Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co.
The series of measures announced by the Reserve Bank of India will surely help mitigate the financial distress triggered by the second wave of COVID. The central bank has shown lot of foresight by announcing flow of unhindered liquidity to the healthcare sector in order to boost production of vaccine, Covid related medicines and ramp up oxygen supplies. That this special lending window of Rs 50,000 crore has been classified under priority sector lending will ensure steady flow of loans to the healthcare sector that is at the forefront of India’s valiant battle against the virus. In a bid to further encourage to lend to healthcare companies, RBI has also given incentive to banks. The decision to offer restructuring to borrowers including MSMEs with aggregate exposure of upto Rs 25 crore is also a welcome move since small entrepreneurs and individuals are the most vulnerable segments. Rashmi Saluja, Executive Chairperson, Religare Enterprises Ltd
With the fresh challenge of the historic rise in COVID cases and shortages of vaccines owing to the fury of the second wave of the pandemic, the measures taken by RBI are well-timed. The restructuring of loans for loans under 25CR by NBFC is a smart move to ease the burden on the borrower. SMEs and MSMEs have played a critical role in driving the economy over the last few years. Furthermore, the MSME sector has had a restructuring window since March 2019, and extending it by two years would not only benefit the MSME sector but will also help the system in generating more liquidity Rohit Poddar, Managing Director, Poddar Housing and Development Ltd
The three year facility, which the banks can advance, to the of Rs. 50,000 Crs, is a good measure to immediately help ramp up medical and healthcare facilities. The benefits of this will help enhance capacity for the longer term as it covers diagnostic, preventive as well as combative aspects of healthcare. The smaller entities like micro finance institutions also benefit from the current package, which will bring some relief to them too which is one of the worst affected sectors as of now. Joseph Thomas, Head of Research, Emkay Wealth Management
In its limited space, the RBI governor announced few measures to support the economy dealing with the second wave of the pandemic. Though a loan moratorium was not announced, restructuring of loans could bring some relief to the borrowers. To incentivize lending, banks can park money equal to COVID book with the RBI at 40 bps above the reverse repo rate. Similarly, lending to MFIs would be categorised as priority sector lending that could also support credit growth in the economy Deepthi Mathew, Economist at Geojit Financial Services
Governor Shaktikanta Das reassured the nation and markets that the RBI would be proactive to ameliorate the pain and help businesses & boost the economy. Term liquidity of Rs 50000 cr as on-tap liquidity for access to the emergency health facility, 3-year TLTRO for small finance banks, another installment of G-SAP of Rs 35000 cr, lending by SFBs to MSMEs to be classified as priority sector lending… are all timely steps in the right direction. The fact that there is no moratorium announcement will be seen by the markets as positive since the message is that the situation is not bad as to warrant another moratorium VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services
RBI has reassured the small & impacted sectors of the economy through various liquidity & restructuring measures like a continuation of on tap liquidity window at concessional rates, SLTRO & categorization under Priority Sector Lending. It has also targeted softening of yield curves along with liquidity support to the economy through GSAP 1.0 (Government Securities Acquisition Programme). While the RBI Governor has expressed concerns about the prevailing covid situation & mixed high-frequency indicators in April, the measures announced today might not give a major boost to the equity markets but are likely to provide downside support & will act as a confidence booster. Mohit Nigam, Head, PMS, Hem Securities