RBI Announces Relief Measures To Tackle Covid-19

By Aman|Updated : May 6th, 2021

The Reserve Bank of India (RBI) on Wednesday, 5th May 2021 announced a Covid package of Rs 50,000 crore for vaccine makers, medical equipment suppliers, hospitals, and even patients in need of funds to treat the disease, while opening up another round of restructuring of loans for individual and small borrowers for up to two years.

Read this article to know all about the latest announcement and its implications.

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RBI Announces Relief Measures To Tackle Covid-19


The Reserve Bank of India (RBI) on 5th May 2021 announced a Covid package of Rs 50,000 crore for vaccine makers, medical equipment suppliers, hospitals, and even patients in need of funds to treat the disease, while opening up another round of restructuring of loans for individual and small borrowers for up to two years.

What RBI Governor said

  • The RBI also said it would be buying Rs 35,000 crore of bonds from the secondary market on May 20. This will be part of the Rs 1 trillion Government Securities Acquisition Programme (G-SAP) scheduled for the quarter, of which Rs 25,000 crore has already been done. Yields reacted positively to the RBI measures and the 10-year bonds dropped below 6 per cent.
  • “The immediate objective is to preserve human life and restore livelihoods through all means possible,” Das said, adding, “We are committed to go unconventional and devise new responses as and when the situation demands.”
  • The central bank stood in “battle readiness” to ensure that financial conditions remain congenial and markets continue to work efficiently.


Source: Business standard

More about the measure

Funding window

  • The Rs 50,000 crore emergency health services loans, which can be given by banks till March 31, 2022, will be classified as priority sector loans for three years or repayment, whichever is earlier. Priority sector loans are exempted from maintaining cash reserve or statutory liquidity ratios, and so banks can extend them at concessional rates too.
  • Moreover, banks can avail of the funds at repo rate, currently at 4 per cent, for providing fresh loans to a wide range of entities related to Covid care. Banks can lend this amount directly, or through intermediaries, and should create a 'Covid loan book’ under the scheme.
  • To incentivise the lenders, the RBI said banks would be eligible to park their surplus liquidity up to the size of the Covid loan book with the RBI at repo rate minus 25 basis points, or at 3.75 per cent. Presently, banks park their excess funds at the reverse repo rate, which is 3.35 per cent.
  • The health loan will have a trickle effect on other sectors as well. The amount of Rs 50,000 crore is roughly 9 per cent of India’s total health expenditure of Rs 6 trillion.
  • A direct support to the sector will generate total output demand of roughly Rs 80,000 crore. The sectors to benefit include organic chemicals, rubber, plastics among others where the limit utilisation is close to 55 per cent, according to a senior SBI official.


For small borrowers

  • To ease the Covid stress, the RBI governor extended another round of restructuring for individual borrowers and small businesses. Borrowers with a loan outstanding of up to Rs 25 crore, and who did not avail of moratorium or restructuring relief last year, could ask for restructuring of their loans for up to two years.
  • The window remains open up to September 30, and banks will have to do the restructuring within 90 days of receiving the request. For this purpose, loans that were standard as on March 31 will be considered.
  • Individual borrowers and small businesses that availed of the facility last year but allowed restructuring of less than two years can now demand to stretch their repayment period up to two years.



Bankers’ reaction on this measure

  • Bankers cautioned that this was not a moratorium of loans, but leaving the discretion to banks to extend relief as they deem fit.
  • Sunil Mehta, chief executive officer of Indian Bank's Association (IBA), said about 90 per cent of borrowers would be eligible for the restructuring. Since it will be for standard assets, those with dues of 89 days can also avail of recast benefit. The room to increase moratorium term for those who availed of restructuring last year will give them support during the present phase, which may impact business prospects.
  • That means, even when an account is categorised as stressed for not servicing loans for a month or two can avail of the restructuring.

For Small Finance Banks

Small finance banks (SFBs) are another segment that received special attention. The central bank has offered liquidity support of Rs.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 Rs.10 lakh per borrower. This facility will be available till October 31. The RBI has further incentivised 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 Rs.500 crore) for on-lending to individual borrowers as priority sector lending. This facility will be available up to March 31, 2022,” Mr. Das said.

Why this measure?

  • 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.

Besides, the RBI extended some measures taken last year for banks and other entities to ease the pain related to the resurgence of the pandemic.

  • For example, it allowed banks to exclude loans up to Rs 25 lakh given to the micro, small and medium enterprises from its net demand and time liabilities (NDTL) for the purpose of calculating cash reserve ratio (CRR). This scheme was to end on October 21, now it can be done till December 31. 
  • Banks were also allowed to use 100 per cent of their floating provisions set aside as buffers for bad times to cover their specific bad debts.

What economists think?

  • Many economists saw the surprise measure as a precursor for other measures to come. Some of those measures could come in the monetary policy meet scheduled in early June.
  • “The interesting part here is that as the RBI believes that the impact this time will be less than that of last year, there will probably be no announcement of a moratorium as of now. Depending on the evolving circumstances there can be more measures expected from the RBI in the coming months," said Madan Sabnavis, chief economist of Care Ratings.
  • According to Kaushik Das, chief India economist of Deutsche Bank, the measures announced were only the first step while “it is reasonable to expect more regulatory measures in the upcoming June policy and thereafter, depending on the evolving Covid-19 trajectory and macro situation.” 


REPO denotes Re Purchase Option – the rate by which RBI gives loans to other banks. In other words, it is the rate at which banks buy back the securities they keep with the RBI at a later period.

CRR Rate

CRR corresponds to Cash Reserve Ratio. It corresponds to the percentage of cash each bank has to keep as cash reserve with RBI (in their current accounts) corresponding to the deposits they have. For example, say if State Bank of India(SBI) got a total deposit of Rs. 1 crore with them, they need to keep 3 % of that as cash reserve with RBI (around 4 lakh rupees).

Reverse Repo Rate

The Reverse Repo Rate is an important Monetary Policy tool used by the Reserve Bank of India (RBI) to control liquidity and inflation in the economy. So, what is Reverse Repo rate? The interest rate at which the RBI borrows money from banks for the short term is defined as Reverse Repo Rate. The Reverse Repo Rate helps the RBI get money from the banks in times of need. In return, the RBI offers attractive interest rates to them. The banks also voluntarily park excess funds with the central bank as it provides them with an opportunity to earn higher interest on surplus money lying idle.

Statutory Liquidity Ratio

Statutory Liquidity Ratio or SLR is a minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities. It is basically the reserve requirement that banks are expected to keep before offering credit to customers. These are not reserved with the Reserve Bank of India (RBI), but with banks themselves. The SLR is fixed by the RBI. CRR (Cash Reserve Ratio) and SLR have been the traditional tools of the central bank's monetary policy to control credit growth, flow of liquidity and inflation in the economy.  The SLR was prescribed by Section 24 (2A) of Banking Regulation Act, 1949.

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