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The Reserve Bank of India (RBI) on Wednesday took a series of liquidity-boosting and loan-relief measures to aid broad swathes of the economy walloped by the second wave of the covid-19 pandemic.

Governor Shaktikanta Das said RBI will make available an on-tap liquidity window of 50,000 crore, with a tenor of up to three years, under which banks can provide fresh lending support to a wide range of entities, including vaccine makers, importers of vaccines, covid-related drugs and priority medical devices, hospitals, pathology labs, manufacturers and suppliers of oxygen and ventilators, logistics firms and also to patients for treatment. This facility, which will be offered at the repo rate, will be available till 31 March 2022.

The steps are likely to help the stressed healthcare industry expand facilities to treat more patients amid the rampaging second wave. With thousands of sick people seeking treatment, hospitals are overwhelmed and are running out of medical-grade oxygen. Vaccines and key medicines are in short supply, as are lifesaving medical equipment such as ventilators and oxygen concentrators.

RBI also allowed the restructuring of loans to retail borrowers and small businesses up to 25 crore without being classified as non-performing assets. Restructuring under the proposed framework may be invoked up to 30 September and will have to be implemented within 90 days after the invocation, it said.

Under the special liquidity window, RBI said all loans given will be classified as priority sector loans till repayment or maturity. Bank can disburse these loans to borrowers directly or through intermediaries regulated by RBI. Das said that banks are expected to create a covid loan book under the scheme. By way of an incentive, banks can park their surplus liquidity up to the size of the covid loan book with RBI under the reverse repo window at 40 basis points higher than the reverse repo rate. For instance, if a bank has lent 500, it can earn 3.75% on the liquidity parked in the reverse repo window.

Analysts said direct support to the identified sectors will help generate total output demand of roughly 80,000 crore, as the macro impact of the scheme can be gauged from the fact that a 50,000 crore liquidity boost is roughly 9% of the total health expenditure of 6 trillion in 2019-20.

Das also announced the second purchase of government securities worth 35,000 crore under the government securities acquisition programme (G-SAP) on 20 May. RBI had announced the 1 trillion G-SAP 1.0 in the monetary policy in April. Under this scheme, the first tranche of 25,000 crore was conducted on 15 April.

“G-SAP has engendered a softening bias in G-Sec yields, which has continued since then," Das said. “With system liquidity assured, RBI is now focusing on increasingly channelizing its liquidity operations to support growth impulses, especially at the grass-root level," he added.

Small finance banks (SFBs) are another segment that received special attention. The central bank has offered liquidity support of 10,000 crore under a special three year long-term repo operation (SLTRO) at repo rate. These banks can on-lend the money taken under this window up to 10 lakh per borrower. This facility will be available till 31 October. RBI has further incentivized SFBs by allowing loans to microfinance institutions (MFIs) be classified under priority sector.

“In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to 500 crore) for on-lending to individual borrowers as priority sector lending. This facility will be available up to 31 March 2022," Das said.

Over the last few days, Das had held a series of meetings with representatives from banks, non-banking financial companies (NBFCs), SFBs and MFIs on the coronavirus crisis.

“Some of the targeted lending programmes are meant to give liquidity to specific sectors and incentivize banks to lend in the direction. Banks could have been conservative in terms of lending to small borrowers in these times. By classifying loans to smaller NBFC-MFIs as a priority sector, RBI has opened liquidity option for them and risk incentive to banks to lend to these entities and indirectly to their borrowers," said Rajeev Yadav, chief executive officer, Fincare Small Finance Bank.

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