Reactions on RBI monetary policy announcement dated May 5, 2021
Measures have been announced for the lending institutions as well as the State governments to ensure ample liquidity & credit flow support
CH. S.S Mallikarjuna Rao, MD and CEO of Punjab National Bank
“RBI has come out with a timely and proactive set of announcements for all stakeholders, including individuals, small businesses, and MSMEs, to mitigate the incipient challenges and support growth impulses at the ground level. Simultaneously, measures have been announced for the lending institutions as well as the State governments to ensure ample liquidity & credit flow support.
The On-tap liquidity of Rs 50,000 crore for covid related health care sector along with the incentives for banks like priority sector classification and higher interest on surplus liquidity window will ease access to emergency health services and reaffirms the immediate objective of preserving life and livelihood. Similarly, Special Long term Repo Operations for SFBs (SLTRO) of Rs 10,000 Crore will facilitate last-mile credit delivery to MFIs adversely impacted by the current wave of the pandemic. The announcement of the second purchase of Government Securities of Rs 35000 Crore under GSAP assures further liquidity supply.
Reopening of one-time Restructuring for individuals and MSME, incentivizing credit flow to MSME borrowers and Covid Resolution framework 2.0 will help address the uncertainties faced by the most vulnerable sections. Allowing OTR 2.0 to Individuals, Small businesses & MSMEs having aggregate exposure up to 25Cr who have not availed restructuring earlier and who were classified as standard as of 31.03.2021 is a positive step for the lending institutions with borrowers having cash flow issues due to the COVID pandemic shall get relief. Permitting individual borrowers and small businesses to modify the restructuring plan to the extent of total tenor up to 2 years shall also help such borrowers who have availed OTR 1.0 with truncated moratorium, shall ease the cash flow. Allowing reassessment of working capital cycle, margin etc., to small businesses & MSMEs restructured earlier shall help align the working capital cycle to the present business environment.
At this crucial juncture, what is comforting is the fact that RBI remains optimistic of India’s resilience & post pandemic future, along with its commitment to deploy all resources in its command in a battle readiness mode.”
Neeraj Dhawan, Managing Director, Experian India
“With today’s proactive announcements, the RBI has once again shown that it is ahead of the curve when it comes to dealing with the impact of restrictions on the economy. The central bank recognises the fact that unlike the impact of the Covid wave last year, the broader economic activity is more or less on track, but the short-term financial implications on individuals and small businesses need to be reduced through additional liquidity and easing measures that can be routed through the banking system.
Thus, the extension of the resolution framework period is a timely and welcome move as the RBI has made a bold attempt to not only minimise the likely distress in the banking system, but also improve the confidence among marginal borrowers by giving them more time, thereby reducing wide-spread defaults.
By allowing limited KYC till December 31, 2021 in accounts where periodic KYC updating is due or pending, the RBI has certainly eased customer concerns regarding day-to-day financial transactions including on-time loan repayments, and any potential defaults. Equally, the extension of Video KYC to more categories will enhance customer convenience, assisting lenders to achieve timely regulatory compliance in terms of KYC rules.”
Dr Vidya Mahambare, Professor of Economics and Finance, Programme Director - Postgraduate Diploma in Management Chairperson, UB-GL Centre for Banking Excellence
“RBI’s liquidity enhancing measures announced today are aimed at encouraging banks to lend to targeted sectors such as healthcare and small borrowers. With sufficient liquidity already available with banks it is not clear as to why the flow of funds to these sectors would increase with minor incentives. The extension of availing the loan restructuring for SMEs is a welcome step. Also announced was the next round of purchases of outstanding government securities by the RBI later this month which should lower the pressure on G-sec yield and thus on the lending rates in general.”
Anshuman Magazine, Chairman & CEO, India, South-East Asia, Middle East & Africa, CBRE
“With today’s announcement, RBI focused on the revival of the Indian economy by adding adequate liquidity that ensures further stability of the overall market in the current scenario. The COVID loan scheme will boost economic activity and aid the growth of the MSME’s sector as well.
The announcement of restructuring of loans for small borrowers is a proactive move as it will provide some relief against asset downgrade and also provide relief to lenders. Liquidity support to the healthcare sector is also a commendable step. These decisions by the central bank to tackle the current situation are much appreciated and well-timed to ensure stability and economic revival.”
Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital
“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 ₹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.”
Naveen Chandramohan, Founder, ITUS Capital
"Growth coming through from additional spending – the bias towards action from the RBI Governor has been a strong signal to the markets. While the magnitude per se is small today, the RBI has made clear of their intent on helping and supporting the on-the-ground economy through support for the MSMEs through cheap lending and with a focus on survival through this period. This bodes well for the long term growth of the economy and should give confidence to investors on the longer term trajectory of the economy. The pharma and API Industry which has had structural tailwinds from a manufacturing side should continue to see a philip in growth and this will continue to be a theme of interest for long-term investors in India”.
Madhusudan Ekambaram, Co-Founder & CEO, KreditBee and Co-Founder, FACE (Fintech Association for Consumer Empowerment)
“The RBI’s announcement of re-opening one-time restructuring for individuals and MSMEs till September 30, comes as a great relief. Further in cases where, individual borrowers and small businesses who have availed restructuring of their loans under Resolution Framework 1.0, lending institutions will be allowed to use the permitted 2 years window to modify such plans to the extent of increasing the period of moratorium and/or extending the residual tenor up to a total of 2 years. This welcoming move was the need of the hour, since individuals and businesses have been gravely affected by the pandemic’s second wave and lockdown-like situations, resulting in an acute economic stress on states. The RBI’s decision will provide the necessary headroom to the financial institutions to effectively re-evaluate their working capital and will work towards positively impacting the general sentiment in the economy.”
Dr. Samantak Das, Chief Economist and Head of Research & REIS, JLL India
“RBI has proactively stepped in to address the financial challenges arising due to the second wave of the pandemic. The Central Bank has announced a COVID loan book to support those directly involved in addressing the pandemic (healthcare sector) with on-tap liquidity of INR 50,000 crore to banks. RBI has also recognised the hardships faced by individuals, small businesses and medium and small enterprises due to the lockdown and provided Resolution 2.0 measures for restructuring loans to small borrowers up to Rs 25 cr. Other than individual borrowers, this will provide major relief to real estate linked SME players especially suppliers of input material for the sector. The working capital review will also help these stakeholders to tide over their liquidity issues as their cash flows have been partly impacted due to the recent lockdown restrictions in various states.”
Sharad Kumar Saraf, President, FIEO
“The measures announced by the Reserve Bank of India, due to the ongoing second wave of the Covid-19 pandemic, including term liquidity facility of ₹50,000 crore to ease access to emergency health services, special long-term repo operations (SLTRO) for small finance banks (SFBs), lending by small finance banks (SFBs) to MFIs for on-lending to be classified as priority sector lending, credit to MSME entrepreneurs and resolution framework 2.0 for Covid related stressed assets of individuals, small businesses and MSMEs, which will not only instill a sense of security and ease liquidity concerns but will help in boosting the confidence of businesses and entrepreneurs across the country.
Extending easy credit will help in expanding the health infrastructure in the country, which is in distress due increasing Coronavirus infection. The Federation together stands with the government in all its efforts to control the surge in Covid-19 pandemic and support the economic growth of the country.”
Anshuman Panwar, Co-Founder, Creditas Solutions
“RBI has been very pragmatic in its approach towards handling the Covid crisis. While RBI has not announced a blanket moratorium today, stressed borrowers have been given a choice to opt for resolution if required. This will ensure that only those who genuinely need restructuring of their loans will approach the banks. At the same time, it will help counter financial stress in the system. As an integral part of India’s banking system with technology led delinquency management, Creditas will also continue to guide individual borrowers on timely payments and opting for resolution mechanism if required, as mandated by RBI.”
Rajesh Sharma, Managing Director, Capri Global Capital Ltd
“Today’s fiscal announcement by RBI announcement has come at an opportune time and shows a certain amount of optimism in the hardship of an unfortunate pandemic. The targeted announcement by the central bank shows an ambitious effort to strengthen the Indian economy. Opening a one-time restructuring window for individuals and MSME till September 2021 will give an impetus to scale up their business without worrying about financial destitution. Also, the extension window for the earlier availed borrower would ease liquidity challenges and facilitate meeting the objective of inclusive growth. Additionally, On-tap liquidity of Rs 50,000 crore at repo rate and qualification of priority lending is focusing on strengthening the health infrastructure of the country.”
Aashit Shah, Partner, J Sagar Associates
“The announcements made by RBI today will benefit the MSMEs and small businesses who have been adversely impacted by the second wave of the pandemic. They will also provide much needed liquidity to the emergency healthcare sector to battle the proliferating spread of the virus. A new term liquidity facility for healthcare sector at the repo rate will aid in ramping up covid related healthcare infrastructure and production and supply of essential healthcare products such as vaccines, oxygen and ventilators. It will also benefit patients burdened by unaffordable covid related medical bills. The RBI has incentivised banks to offer these facilities by including them within the PSL targets of banks, and also permitting them to deposit the surplus liquidity up to an amount equal to their “Covid Loan” book with RBI at a rate which is 40 basis points higher than the normal reverse repo rate. This will ensure that banks accelerate the provision of liquidity for emergency healthcare services so that India is better equipped financially to deal with the pandemic. Further, additional restructuring guidelines for to MSMEs, small businesses and individuals will assist them tide over the uncertainties caused due to the second wave. These guidelines as well as the recently introduced pre-arranged insolvency resolution process will enable MSMEs to restructure their debts without the looming fear of losing or liquidating their businesses.”