In an attempt to liquidate the market and strengthen the financial well-being of MSMEs and SMEs, the RBI governor announced ‘on-tap liquidity’ scheme worth Rs. 50,000 crores. RBI governor Shaktikanta Das also introduced a plethora of other stimulus schemes to entities that produce vaccines, healthcare facilities, and other key aids to the country.

Shiksha explains On-Tap Liquidity measure taken by the RBI

The Reserve Bank of India, led by Shaktikanta Das, announced a Rs. 50,000 crore on-tap liquidity window. The tenor for the liquidity window is up to 3 years with a similar rate as the current repo-rate- 4%. The scheme is aimed to inject immediate liquidity in the market through which COVID-19 related health-care manufacturing and services can take benefit.

Under the on-tap liquidity scheme financial institutes can lend various companies that are into the business of producing vaccines, priority medical raw materials, hospitals, diagnostic labs, oxygen manufacturing, ventilator manufacturing, COVID-19 related drug imports.

Das in his virtual address said that financial institutes will be incentivized to provide quick lending support under this scheme through priority sector classification till March 31, 2022. Das announced, “Banks may deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI.”

Now the banks will be able to create a COVID-19 loan book. These banks will be entitled to position its surplus cash up to the size of its loan book with the RBI under the reverse repo rate.

RBI offers Rs. 10,000 crores to SFBs

In his announcement, Mr. Das also announced RBI’s decision to put together 3-year long-term repo operations (SLTRO) amounting to Rs. 10,000 crores at the repo rate (4%) to aid SFBs (Small Finance Banks). This money will be used to provide fresh lending support that could be as high as Rs. 10 lakh per borrower. The move is taken to help small businesses, individuals, unorganized sector businesses that are the worst-hit during the COVID-19 pandemic.

Small Finance Banks will be eligible to give fresh lending to other smaller Micro finance Institutions that has an asset size of not more than Rs. 500 crores. The scheme will be in place till March 31, 2022.

New scheme for individuals, SMEs and MSMEs that are hit by COVID-19 stress

Mr. Das said how those individuals, SMEs and MSMEs with exposure up to Rs. 25 crores and who didn’t avail any restructuring aid that were introduced by the RBI earlier will be entitled to avail something called the Resolution 2.0. It should be noted that this restructuring will be available to only those who were classified as ‘Standard’. Those who want to avail Resolution 2.0 will be able to do so till September 30, 2021 and will have to implement the proposed framework within 90 days of invocation.

Additional lending to MSME owners

Earlier till Feb 2021, financial institutes were incentivized and were able to deduct credit distributed to new MSME owner borrowers from their NDTL (Net Demand & Time Liabilities). To incentivise these financial institutes further, the institutes can give exemption to those who have exposure of up to Rs. 25 lakhs till December 31, 2021.

RBI gives OD (overdraft) schemes to States

Mr. Das also announced that the State Governments will receive OD facilities so that they can better manage their financial state keeping in mind their particular cash-flows and financial credits. In this facility, the RBI has increased the maximum number of days of OD in 3 months from 36 days to 50 days.

Other Key takeaways from RBI Governor Shaktikanta Das’ announcement

Mr. Das in his address said how the world economy is showing signs of economic recovery thanks to countries from the globe starting afresh with growth, adding stimulus to its economic health. However, he added that these activities are inconsistent among multiple countries and multiple sectors.

He also said that the country’s inflation projection for the next 5 years will be drawn out keeping in mind the COVID-19 infections and its impact on economic slowdown thanks to complete containment of supply chains.

Mr. Das also acknowledged that currently it’s the small businesses and businesses from unorganized sectors at the grassroot level that are worst hit from the second wave of the COVID-19 pandemic.