Incentives for banks to 24×7 NACH availability: Key measures announced by RBI

KEY STORY

The Reserve Bank of India on Friday announced several key financial, economic measures amid the pandemic. The central bank based on its continuing assessment of the macroeconomic situation and financial market conditions, announced additional measures to help stressed sectors during the current challenging times.

Key measures announced by RBI:

1. On-tap Liquidity Window for Contact-intensive Sectors: In order to mitigate the adverse impact of the second wave of the pandemic on certain contact-intensive sectors, a separate liquidity window of Rs 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.

By way of an incentive, banks will be permitted to park their surplus liquidity up to the size of the loan book created under this scheme with the Reserve Bank under the reverse repo window at a rate which is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate.

2. Special Liquidity Facility to SIDBI: In order to nurture the still nascent growth impulses and ensure the continued flow of credit to the real economy, the Reserve Bank had extended fresh support of Rs 50,000 crore on April 7, 2021, to All India Financial Institutions (AIFIs) for new lending in 2021-22. This included Rs 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 Rs 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.

3. Placement of Margins for Government Securities Transactions on behalf of FPIs: The Reserve Bank has been taking several measures to encourage investments by Foreign Portfolio Investors (FPIs) in the Indian debt market. With a view to easing operational constraints faced by FPIs and promoting ease of doing business, it has been decided to permit Authorized Dealer banks to place margins on behalf of their FPI clients for their transactions in Government securities (including
State Development Loans and Treasury Bills), within the credit risk management framework of banks.

4. Facilitating Flexibility in Liquidity Management by Issuers of Certificates of Deposit: In December last year, Regional Rural Banks (RRBs) were permitted to access the liquidity windows of the Reserve Bank as well as the call/notice money market in order to facilitate more efficient liquidity management by the RRBs at competitive rates.

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). It has also been decided that all issuers of CDs will be permitted to buy back their CDs before maturity, subject to certain conditions. This will facilitate greater flexibility in liquidity management.

5. Availability of 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 installments 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.

6. Enhancement of the Exposure Thresholds under Resolution Framework 2.0: The Resolution Framework 2.0 announced by the Reserve Bank on May 5, 2021 provides for resolution of COVID-19 related stress of MSMEs as well as non-MSME small businesses, and loans to individuals for business purposes.

CONCLUSION

With a view to enabling a larger set of borrowers to avail of the benefits under Resolution Framework 2.0, it has been decided to expand the coverage of borrowers under the scheme by enhancing the maximum aggregate exposure threshold from Rs 25 crore to Rs 50 crore for MSMEs, non-MSME small businesses and loans to individuals for business purposes.

As per the central bank statement, the relevant instructions /circulars for all these measures will be issued separately.