RBI Governor Shaktikanta Das today announced a Special long-term repo operation (SLTRO) for Small Finance Banks (SFB) amid the rising challenges associated with the second wave of COVID-19 in the country.
The banking regulator will be conducting a special 3-year long-term repo operation of Rs 10,000 crore at repo rate, said the Governor during the media brief.
A M Karthik, Vice President & Sector Head – Financial Sector Ratings, ICRA said, “RBI ensures relief to small businesses and MSMEs by extending loan restructuring window by 6 months, permitting reassessment of working capital needs of already restructured accounts under the resolution framework 1.0 and, by allowing modification in the resolution plans of restructured accounts to increase moratorium period or residual tenors up to 2 years from the original date of restructuring. This, along with Special Long-Term Repo Operations (SLTRO) of Rs. 10,000 crore proposed for small finance banks (SFBs) should ensure some credit flow and should help in building liquidity buffer for the sectors faced with cash flow concerns”
Das said that a cap of Rs 10 lakh per borrower has been finalised for the SFB scheme and the offer will be available till October 31, 2021. Further, SFB on-lending to MFIs will now be categorised as a priority sector.
Further, a term liquidity facility of Rs 50,000 crore for accessing emergency health security is announced by the RBI Governor today. He said that the regulator is now extensively focused on expanding its operations in grassroots levels.
Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital said, “RBI governor’s address has come at a critical time, as the businesses and individuals reel under the grave difficulties posed by pandemic’s second wave. Special term liquidity facility of Rs 50,000 crore to ease access to Emergency Health Services, is a highly essential step taken. This, when coupled with some form of Credit Guarantee would smoothen the credit delivery. RBI announced re-opening of one-time restructuring for individuals and MSMEs till September 30, while further allowing the lending institutions to extend the period of moratorium up to 2 years, under restructuring 1.0. This move will offer immense relief to financial institutions as well as borrowers, towards effectively managing their working capital. Apart from this, I would like to suggest the authorities to extend the coverage of PSL to inculcate lending to NBFCs, whose assets are primarily MSMEs and small businesses. This will in turn enhance the ability of NBFCs to provide credit to the affected businesses.”
He stated that the central bank would emphasize on monitoring the emerging developments and a normal monsoon outlook by the IMD will help the bank in sustaining rural demand.
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MFIN (Microfinance Institutions Network), the representative microfinance Industry association and RBI recognized self-regulatory organization, has welcomed RBI Governor’s initiative to infuse liquidity for small MFIs by classifying and recognising Small Finance Bank’s (SFBs) lending to smaller NBFC-MFIs as priority sector lending. As SFBs understand the market well, it should lead to tangible liquidity flow. By allowing lenders the flexibility to restructure microfinance loans on a case-to-case basis is also welcome as it will provide relief to stressed clients.
Dr Alok Misra, CEO, MFIN said: “Seeing the severity of the situation, RBI Governor has proactively met sector representatives and followed it up with possibly first steps – he mentioned in the beginning that the policy response will be calibrated, sequenced and well timed. Liquidity is the key and I hope along with April announcement of Rs 50,000 crore support through AIFIs and today’s measure will help the sector. We also expect that with changes in the evolving situation, RBI will keep introducing newer relief measures.”
“We will keep engaging with the RBI on creating a systemic support for allocating a specific subtotal out of the overall liquidity support for the smaller NBFC MFIs, Dr Misra said adding “we also anticipate that the pricing issue would also hopefully be resolved soon.”