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Covid second wave: Banks pitch for more reliefs

On Wednesday, RBI had announced a series of measures, including a one-time loan restructuring mechanism for individuals, small business and MSMEs
Reserve Bank of India.
Reserve Bank of India.

Our Special Correspondent   |   Mumbai   |   Published 07.05.21, 01:33 AM

The stack of measures that the Reserve Bank of India announced on Wednesday to tackle a resurgent Covid-induced crisis has served to only whet the banking industry’s appetite for more.

On Wednesday, the central bank had announced a series of measures, including a term liquidity facility of Rs 50,000 crore to boost funding towards healthcare infrastructure and services and a one-time restructuring mechanism for borrowers such as individuals, small business and MSMEs who have an aggregate exposure of Rs 25 crore.


Experts feel that though it may alleviate some of the imminent stress, more measures may be needed to help some of the other segments that have been left out of the scope of the current relief measures.

“One of our key demands is a restructuring mechanism like the one announced in August last year which has been accepted by the RBI. We do not rule out the possibility of RBI coming out with additional steps in the near future if the current crisis persists,” a senior official from a private sector bank said.

Analysts at Jefferies said in a note that the package announced by the RBI does not cover the mid-corporate segment even if it belongs to the one of the affected sectors and the central bank may address this issue later.

“We expect more targeted measures to follow as the situation evolves,” said Madhavi Arora, lead economist at Emkay Global Financial Services.

“While the financial conditions remain comfortable unlike the first Covid wave, the monetary response function has focused on reaffirming the current policy accommodation and, on the regulatory front, it has helped banks manage their asset quality and support the stressed borrowers, especially the MSMEs,” Arora added.

Back in February, the RBI had allowed commercial banks to deduct credit disbursed to new borrowers from their deposits while calculating how much funds they needed to sequester under the cash reserve ratio (CRR). This exemption is now available for exposures up to Rs 25 lakh and has now been extended till December 31, 2021.

However, MSMEs are not impressed by the steps announced by the central bank.

“The MSME members have expressed a sense of disappointment over the RBI announcement. Entrepreneurs want immediate credit for those who have no existing credit especially in sectors which have been greatly impacted like food and beverages, retail vendors, hospitality and entrepreneurs in the start-up phase. Export focused MSMEs want an extension in lines of credit and waiver of interest for the period of the pandemic,” Kenny Ramanand, national general secretary of  All India Manufacturers Organisation, told The Telegraph.

Crisil on Thursday said that half of mid-sized companies rated by it will be eligible for the restructuring window offered under the Resolution Framework 2.0 of the RBI.

It currently rates about 6,800 mid-sized companies (excluding financial sector entities). Of these, around 3,500 are small and medium enterprises (SMEs) and have a loan exposure of up to Rs 25 crore. Crisil estimates that about 3,400 of them are standard accounts, which makes them eligible to avail of the restructuring.

One suggestion is that the RBI could relax the bad loan recognition norms. “The RBI can provide forbearance (say for 30-90 days) on bad loan recognition which has been done in the past (post-demonetisation) and is relatively less disruptive,” Emkay Global said in a research report.

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