Even as it left the policy repo rate unchanged, the Reserve Bank of India decided to open the liquidity tap a bit more, this time aggregating ₹31,000 crore, to help MSMEs, especially those in contact-intensive sectors as Covid-19 second wave rages on.
The central bank decided to open an ‘On-tap Liquidity Window’ aggregating ₹15,000 crore till March 31, 2022 for sectors, including hotels and restaurants, tourism, and aviation ancillary services. Other services, including private bus operators, car repair services, car rentals, event/conference organisers, spa clinics and beauty parlours/salons will also benefit. All these services were badly impacted by the pandemic, the RBI’s latest Annual Report had acknowledged.
“We will continue to think and act out of the box, planning for the worst and hoping for the best. The measures announced today, in conjunction with other steps taken so far, are expected to reclaim the growth trajectory from which we have slid,” said RBI Governor Shaktikanta Das.
Banks can tap this window to get funds with tenors of up to three years at the repo rate (4 per cent) to provide fresh lending support to these contact-intensive sectors. By way of an incentive, banks will be permitted to park their surplus liquidity up to the size of the loan book created under this scheme with the RBI under the reverse repo window at a rate that is 40 basis points higher than the reverse repo rate (of 3.35 per cent).
Funds for SIDBI
The central bank will also extend a special liquidity facility of ₹16,000 crore to the Small Industries Development Bank of India (SIDBI) to support the funding requirements of MSMEs, particularly smaller units and other businesses including those in credit-deficient and aspirational districts.
SIDBI can tap this facility for on-lending/refinancing through novel models and structures. “This facility will be available at the prevailing policy repo rate for one year, which may be further extended depending on its usage,” Das said.
The Governor observed that to nurture the still nascent growth impulses and ensure continued flow of credit to the real economy, the RBI had announced fresh support of ₹50,000 crore on April 7 to All India Financial Institutions (AIFIs) for new lending in 2021-22. This included ₹15,000 crore to SIDBI.
Restructuring framework
The RBI decided to expand the coverage of borrowers under the Resolution Framework 2.0 by enhancing the maximum aggregate exposure threshold from ₹25 crore to ₹50 crore for MSMEs, non-MSME small businesses and loans to individuals for business purposes. This opens the Framework to a larger set of borrowers.
Recognising that the second wave could pose difficulties in loan servicing, the RBI had unveiled the Framework, which allows restructuring of loans taken by individuals, small businesses and MSMEs.
These measures, among a host of others, came even as the Monetary Policy Committee (MPC) stood pat on the policy repo rate.
By leaving the repo rate unchanged, the committee sought to strike a balance between the need to tamp down inflationary pressures being exerted by rising international commodity prices, especially of crude, and logistics costs, and support economic activity, currently hobbled by the adverse impact of the second wave.
All six MPC members unanimously voted to keep the policy repo rate at 4 per cent and continue with the accommodative stance. The repo rate has been static since May 2020.
Risk from rural spread
“Maintaining financial stability and congenial financing conditions for all stakeholders is a commitment that we have adhered to assiduously,” Das said.
“The sudden rise in Covid-19 infections and fatalities has impaired the nascent recovery that was underway, but has not snuffed it out. The impulses of growth are still alive,” he said. He cautioned that the increased spread of Covid to rural areas, however, poses downside risks to the growth outlook.
FY22 GDP growth lowered
The MPC cut the real GDP growth projection to 9.5 per cent in 2021-22 against its earlier forecast of 10.5 per cent. Retail inflation has been projected at 5.1 per cent during 2021-22 (against earlier projection of 5 per cent), with risks broadly balanced.