RBI Governor Announces Strong Banking and Industry Measures to Fight COVID-19

The second wave of the COVID-19 pandemic has proved to be deadlier for India than perhaps any other country. As the world’s largest vaccination drive continues, some more good news came after yesterday.

The RBI Governor Shaktikanta Das, reemphasised his belief that India will soon be out of these tough times, and announced a slew of measures to uplift our pandemic-hit economy. The address, which happened early morning on May 5, brought with it interim relief for the banking and the SME sector.

Much needed economic relief is finally here!

Before we dwell on what the announcement means for individuals and institutions, here are the key highlights of the Governor’s address:

• Das began by extending an on-tap liquidity scheme of Rs. 50,000 crores with a short 3-year tenure to various entities fighting COVID. These include vaccine manufacturers, suppliers, importers, priority medical device manufacturers, pathology labs, and ventilator and oxygen suppliers. Under this scheme, the RBI extends loans to amplify the COVID healthcare infrastructure to beat the deadly second wave.

• Financial institutions are being incentivised and given a free hand for priority lending till 31^st March 2022 to various hospitals, vaccine logistics sector, oxygen suppliers and COVID drug manufacturers.

• Same as last year, financial institutions will open a 2^nd lending window for individuals and small borrowers who wish to avail of quick loans or restructure old ones. The limit for this lending measure goes up to Rs. 25 crores.

• To avail of the incentives mentioned above earlier, an applicant had to successfully finish their KYC by visiting their lender – something unideal during the second COVID wave. This is why KYC completion will temporarily switch to a virtual medium for specific categories.

• State governments will be able to avail of the overdraft facility with ease until September 30^th, 2021.

• The RBI allocated Rs 10,000 crores for small finance banks. The Central Bank is mobilising funds into these institutions for further distribution to individuals as well as industry.

The impact of the latest RBI measures on diverse entities

Until the ferocious second COVID wave dies down, these measures will benefit a broad spectrum of entities, especially the SME and MSME sector and individual borrowers. Here’s how:

Loan restructuring for SMEs

By making easy credit available or by allowing SMEs to restructure their loans, the authorities will ensure that production doesn’t halt. Since SMEs can reach out to lending institutions for priority loans, they will avoid cash flow from drying up.

SMEs will also manage to purchase and pay for raw materials on time, and the workers will not be kept from their daily, weekly or monthly wages.

Allocation of Rs. 10,000 crores for small finance banks

Not only SMEs and the healthcare infrastructure stand to benefit from this allocation, but also small banks and individuals. Given that the measures announced open the second window of extending loans to individuals and small-time borrowers, lending institutions will likely witness a spike in people opting for personal loans.

Since the primary objective is to safeguard human life, ease of receiving personal finance can go the distance in shielding the most vulnerable of the population from the economic slump brought upon by the second wave.

Rationalization of KYC norms

What good are these reforms if individuals and organisations are not given an easy way to fulfil their KYC requirements? Without KYC compliance, no lending institution, including the Central Bank can disburse monetary benefits to the borrowers. However, with the second wave thwarting movement and promoting partial lockdowns across the country, visiting your lender is near impossible.

To counter this logistical issue, the Governor announced rationalisation of KYC compliance that allows you to give your KYC details over a video call. Such a thing removes the final hurdle hindering your chances at receiving finances.  

Concluding thoughts – This too shall pass!

Towards the end of the governor’s address, he echoed Mahatma Gandhi’s words “our faith should be like an ever-burning lamp which not only gives us light but also illuminates the surroundings”.

In lieu of this, the measures proposed by the RBI governor urges all stakeholders to make the most of the benefits extended. The second COVID wave is surely crippling but not something Indian citizens can’t overcome. What’s more, we already have the experience to back on from last year, especially when it comes to dealing with a pandemic-helmed economic downturn.

The RBI stands firm with its measures around priority lending, loan restructuring and KYC norms rationalisation. Doing this ensures that India’s financial workings remain favourable and the markets stay functional. Given that the Central Bank is now working more closely than ever with the Government to alleviate the economic and infrastructural tribulations unfurling in the country, the future looks bright.

As one of India’s leading financial institutions, Tata Capital is committed to putting up a strong fight against the pandemic’s repercussions. We continue doing our bit by extending priority loans to SMEs and MSMEs at an affordable interest rate with customisable repayment terms. As an institution, we are hopeful and unwavering in our commitment to help the economy come back to life soon!