Fund-rich banks unlikely to use RBI's special window of Rs 15,000 crore

Lenders flush with funds are less likely to use the Reserve Bank of India’s (RBI’s) special window of Rs 15,000 crore for contact-intensive sectors such as tourism and hospitality to ensure continued flow of liquidity to those hit by the second wave of Covid-19.
 
Lenders will now have their task cut out and need to ensure that large and better-rated entities do not corner all benefits. “They must see to it that those who are weak to withstand shocks get support. A repeat of the experience with the early version of targeted long-term repo operations (TLTRO) must be avoided,” bankers and rating agency analysts said.

 
The RBI has decided to set up a special liquidity window of Rs 15,000 crore for contact-intensive sectors and also raised the limit for those eligible for recasting of debts under regulatory steps to Rs 50 crore from the existing Rs 25 crore.
 

SS Mallikarjuna Rao, managing director and chief executive officer, Punjab National Bank, said on-tap liquidity facility will ensure credit flow to contact-intensive sectors and MSMEs. Rajkiran Rai G, chairman, Indian Banks Association (IBA), said the RBI had ensured that adequate liquidity is available to funding segments in need while ensuring an equitable distribution.
 
Pointing to limited use of the facility, a top private sector executive said banks are flush with money and will not like to create additional liability using the liquidity window. Priority will be to use funds already on the books.

 
Sectors that stand to benefit from this scheme include hotels, restaurants, tourism — travel agents, tour operators, adventure/heritage facilities, aviation ancillary services — ground handling and supply chain, private bus operators, car repair services, spa clinics, and beauty parlours/salons.
 
The RBI has said banks have to create a separate Covid loan book under this scheme.
 
Anil Gupta, vice-president, sector head, financial sector ratings, ICRA, said, given the surplus liquidity in the banking system, lenders are unlikely to directly borrow under the window from the RBI. However, an additional incentive of 40 basis points over the reverse repo rate could provide some incentive to lenders to provide credit to these sectors.

 
Anil Gupta, vice-president, sector head, financial sector ratings, ICRA, said given the surplus liquidity in the banking system, lenders are unlikely to directly borrow under the window from the RBI. However, an additional incentive of 40 basis points over the reverse repo rate could provide some incentive to lenders to provide credit to these sectors.
 
The contact-intensive sectors could see a demand contraction of 30-50 per cent in the current quarter as compared to the preceding one.
 
Subodh Rai, senior director, CRISIL Ratings, said there is a possibility that only large existing borrowers could benefit from this on-tap liquidity window as banks might have greater comfort with them. In the current environment, some lenders could be risk-averse and the benefit of on-tap liquidity facility may not, therefore, reach the smaller and lower-rated companies.

 
Also, the RBI on Friday said it had expanded the coverage of borrowers under the restructuring the 2.0 scheme. Now, MSMEs, non-MSME small businesses, and loans to individuals with aggregate exposure of Rs 50 crore will be eligible for restructuring. Earlier, the threshold set was Rs 25 crore.
 
According to CRISIL’s assessment, an additional of 1,300-1,400 mid-sized firms under its rating pool will become eligible for restructuring under the revised norms. This will support companies with relatively weaker credit profiles.
 
Public sector banks, including the country’s largest lender State Bank of India (SBI), have come out with a templated approach to rework retail and small business loans under the RBI’s Covid restructuring package 2.0.