Keeping the current pandemic situation in mind, the Reserve Bank of India (RBI) has authorized small finance banks (SFBs) to offer fresh loans to microfinance institutions (MFIs) for on-lending to individual borrowers. Only SFBs with assets of up to Rs 500 crore are included in this directive issued by the bank.
Commenting on the decision, RBI Governor Shaktikanta Das said that under the circumstances, SFBs will be permitted to consider lending to MFIs for on-lending to individual borrowers as priority sector lending (PSL), which was not the case earlier. He also added that this provision would continue till March 31, 2022.
The RBI is also monitoring the impacts of the second wave of the COVID virus on the economy. The future of the global economy currently looks hazy and full of risks. Faced with such conditions, the latest decision by the RBI will help address the financial risks faced by institutions across the country.
Shaktikanta Das also unveiled Rs 50,000 crore liquidity support measures to boost the flailing health infrastructure and other load restructuring schemes to help the country’s financial institutes weather the second pandemic wave.
Under the different schemes proposed by the RBI, the provision of restructuring options for borrowers who are unable to repay their loans is noteworthy. The bank came up with new restructuring 2.0 options accessible to individuals as well as small businesses who had availed the earlier restructuring plan.
Banks all over India had been spared the ill-effects of the nationwide lockdown of 2020 largely due to the RBI and the Centre’s diligence. The announcement of a six-month moratorium followed by a one-time restructuring facility, helped many banks avoid a spike in their non-performing assets (NPAs).
The Governor also mentioned that the second wave of the deadly pandemic had hit India’s economy hard and changes would have to be adopted to counter it. In conclusion, he said, “We have lessons to draw from our experience of last year when as a nation we came together and overcame the once in a generation challenge imposed by the first wave of the pandemic. Our faith should be like an ever-burning lamp which not only gives us light, but also illuminates the surroundings.”