Major Highlights Of RBI’s Bi-Monthly Monetary Policy Resolutions

Mumbai: In a statement that sets out various developmental and regulatory policy measures to enhance liquidity support for financial markets and other stakeholders, the resolution of the Monetary Policy Committee (MPC) of RBI on Thursday stated about easing of financial stress caused by COVID-19 disruptions through liquidity management, regulation and supervision, financial inclusions and payments and settlements.

Some measures include strengthening credit discipline to improve the flow of credit, deepen digital payments, augment customer safety in cheque payments, and facilitate innovation across the financial sector by leveraging on technology through an Innovation Hub.

Here are the five major highlights of the Monetary Policy Statement:

Revised Priority Sector Lending To Include Start-Ups

The struggling startup community in India, currently facing a liquidity crunch, is pinning hopes on a revival after the Reserve Bank of India (RBI) announced that it will broaden the scope of Priority Sector Lending (PSL) to include them too.

The announcement came after the RBI Governor Shantikanta Das called for a “policy-reorientation” to help startups that were facing funding challenges due to the COVID pandemic. Das had acknowledged that it has become imperative to re-orient the policy focus to aid the startups that would be critical for employment generation and overall economic growth.

Debt restructuring to help Indian companies to tide over COVID-19 crisis

The RBI’s plan to allow one-time debt restructuring and setting up an expert committee headed by former banker K V Kamath for corporate and personal loans resolution will provide much-needed relief to Indian companies once the moratorium on loans ends this month.

A host of Indian companies led by airlines, hotels, travel and tourism, real estate and media are expected to fall into a financial crisis, as their cash flows dried up due to the nationwide lockdown announced by the Indian government to contain the Coronavirus pandemic.

Innovation Hub for the finance sector in India

“The Innovation Hub will act as a centre for ideation and incubation of new capabilities which can be leveraged to create innovative and viable financial products and/or services to help achieve the wider objectives of deepening financial inclusion, efficient banking services, business continuity in times of emergency, strengthening consumer protection,” said the statement.

The statement further informed about the Regulatory Sandbox framework being one such recent initiative in which Digital Payments were the first cohort. Six proposals were accepted under the Sandbox, the pilot studies/trials of which have been delayed on account of the present COVID-19 situation. Areas such as cybersecurity, data analytics, delivery platforms, payments services, etc., remain at the forefront when we think of innovation in the financial sector.

Restructuring of MSME debt

Recognising the need for continued support to MSMEs’ meaningful restructuring, it has been decided that, in respect of MSME borrowers facing stress on account of the economic fallout of the pandemic, lending institutions may restructure the debt under the existing framework, provided the borrower’s account was classified as standard with the lender as on March 1, 2020. This restructuring shall be implemented by March 31, 2021.

Loan restructuring move to provide a breather to real estate

The RBI’s decision to extend a one-time restructuring term loans with up to 2 years moratorium is expected to provide a breather to stressed real estate developers and individual borrowers in the housing segment alike. The one-time restructuring of loans without classifying them as non-performing assets (NPAs) will be based on the recommendation of the expert committee steered by KV Kamath, said RBI. The central bank has also announced further liquidity infusion to the tune of Rs 5000 Crores to National Housing Board (NHB) which should be able to provide some relief during these times of crisis.

“In order to shield the housing sector from liquidity disruptions under the prevailing conditions and augment the flow of finance to the sector, it has been decided to provide an additional standing liquidity facility (ASLF) of ₹5,000 crore to NHB – over and above ₹10,000 crores already provided – for supporting housing finance companies (HFCs). The facility will be for a period of one year and will be charged at the RBI’s repo rate, ” read the statement.