Food and fuel inflation have driven core inflation, according to RBI Governor Shaktikanta Das, who added that the anticipated normal monsoon forecast could alleviate the current situation. The Reserve Bank of India announced a slew of interventions on Wednesday, including loan restructuring for individuals and small businesses affected by a new COVID-19 surge. To ease access to emergency health services and improve the provision of immediate liquidity for ramping up COVID-19 related healthcare, the central bank opened a Rs 50,000 crore on-tap window to ease access to goods for COVID treatment.
“The scheme incentivizes banks to offer credit quickly by extending priority sector classification to such lending, and these loans will remain classified as priority sector until repayment or maturity, whichever comes first,” RBI Governor Shaktikanta Das said in an unscheduled press conference. Individuals and micro, small and medium enterprises (MSMEs) with aggregate exposure of up to Rs 25 crore will be considered for the new restructuring programme, according to Das.
This is for those who have not received restructuring under any of the previous frameworks, including the RBI’s Resolution Framework 1.0, which was issued on August 6, 2020, and are listed as standard. According to the proposed process, the restructuring can be requested up until September 30 and must be completed within 90 days of the request, he added. The Reserve Bank of India has also launched a special long-term repo operation for small finance banks worth Rs 10,000 crore. MSMEs will be considered priority sector borrowers for loans up to Rs 10 lakh, according to Das.
Das also proposed a relaxation of the overdraft facility for state governments in order to help them properly handle their cash flows and market borrowing. The maximum number of days an account can be overdrawn has been raised from 36 to 50. In order to improve consumer convenience, the RBI also announced the rationalization of some components of the extent know-your-customer (KYC) norms. Extending the reach to video KYC, also known as the video-based customer recognition method, is one of them, he says.
Furthermore, in light of the COVID-19-related restrictions in various parts of the country, RBI-controlled entities have been asked to enforce “no punitive restriction on customer account service” until 31 December 2021 for customer accounts where periodic KYC updating is new or pending unless otherwise warranted. The Reserve Bank also requested information from banks and other financial institutions.
The RBI has also agreed to broaden the reach of video KYC (know-your-customer) or V-CIP (video-based customer recognition process) to include new types of customers such as sole proprietorships, authorized signatories, and beneficial owners of legal entities. Banks and other controlled organizations can no longer impose punitive limitations on customers unless otherwise required by law or under the direction of an enforcement agency or a court. In his speech, Das emphasized the RBI’s “war readiness” to ensure that financial conditions remain favorable and markets function effectively.
“We will work closely with the government to alleviate the acute hardships that our people are experiencing in this hour of crisis, and we are committed to going beyond the box and devising new responses when and when the situation warrants,” he said. Das said the market reacted positively to the first purchase of Rs 25,000 crore made last month. In two weeks, the RBI will make a second purchase of government securities (G-secs) worth Rs 35,000 crore, he said. Das declared a Rs 1 lakh crore goal for the first quarter under the new G-SAP 1.0 instrument to provide clarity on its bond-buying programme through open market operations (OMO).
According to him, food and fuel inflation have driven core inflation higher. He added that the anticipated normal monsoon forecast could aid in containing food price inflation. The RBI Governor said that the central bank will continue to track and deploy all resources in response to the resurgence of COVID-19 cases.
Text by: Adrita Roy, IBTN9
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