Update on RBI Policy Review on 4th June 2021.

A Banker must note that:
1. RBI has kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent. Consequently the reverse Repo Rate is also kept at 3.35%, Bank Rate 4.25% and MSF Rate at 4.25% . All policy rates have been kept unchanged.

2. The MPC also decided to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target i.e. within the range of 2 to 6%.

3. As per RBI extant guidelines the eligibility conditions for MSME accounts to be considered for restructuring under the framework, states that the aggregate exposure, including non-fund based facilities, of all lending institutions to the MSME borrower should not exceed ₹25 crore as on March 31, 2021.Based on a review, it has been decided to enhance the above limit from ₹25 crore to ₹50 crore.

4. Till now the eligible borrowers who may be considered forresolution under the framework for restructuring included the following sub-clauses: Individuals who have availed of loans and advances for business purposes and to whom the lending institutions have aggregate exposure of not more than ₹25 crore as on March 31, 2021.Small businesses, including those engaged in retail and wholesale trade, other than those classified as MSME as on March 31, 2021, and to whom the lending institutions have aggregate exposure of not more than ₹25 crore as on March 31, 2021.Based on a review, it has been decided to enhance the above limits from ₹25 crore to ₹50 crore.

5. The Real GDP has contracted 7.3% during 2020-21, while GDP grew at the rate of 1.6% in Q4. Overall contraction but Q4 has shown a positive growth.

6. In order to mitigate the adverse impact of the second wave of the pandemic on certain contact-intensive sectors, a separate liquidity window of ₹15,000 crores is being opened till March 31, 2022 with tenors of up to three years at the repo rate. Under the scheme, banks can provide fresh lending support to hotels and restaurants; tourism – travel agents, tour operators and adventure/heritage facilities; aviation ancillary services – ground handling and supply chain; and other services that include private bus operators, car repair services, rent-a-car service providers, event/conference organizers, spa clinics, and beauty parlours/ saloons.

7. To nurture the still nascent growth impulses and ensure continued flow of credit to the real economy, the Reserve Bank had extended fresh support of ₹50,000 crore on April 7, 2021 to All India Financial Institutions (AIFIs) for new lending in 2021-22. This included ₹15,000 crore to the Small Industries Development Bank of India (SIDBI). To further support the funding requirements of micro, small and medium enterprises (MSMEs), particularly smaller MSMEs and other businesses including those in credit deficient and aspirational districts, it has been decided to extend a special liquidity facility of ₹16,000 crore to SIDBI for on-lending/ refinancing through novel models and structures. This facility will be available at the prevailing policy repo rate for a period of up to one year, which may be further extended depending on its usage.

8. To provide greater flexibility in raising short term funds by RRBs, it has now been decided to permit RRBs to issue Certificates of Deposit (CDs).

9. National Automated Clearing House (NACH) on all days of the week:NACH, a bulk payment system operated by the NPCI, facilitates one-to-many credit transfers such as payment of dividend, interest, salary, pension, etc., as also collection of payments pertaining to electricity, gas, telephone, water, periodic instalments towards loans, investments in mutual funds, insurance premium, etc. NACH has emerged as a popular and prominent mode of direct benefit transfer (DBT) to large number of beneficiaries. This has helped transfer of government subsidies during the present COVID-19 in a timely and transparent manner. In order to further enhance customer convenience, and to leverage the 24×7 availability of RTGS, NACH which is currently available on bank working days, is proposed to be made available on all days of the week effective from August 1, 2021.These are the major takes away for the Bankers.

Prof. S.P.Singh

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