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The RBI will provide loan relief to some small businesses for a period of up to two years, Das said in an unscheduled address on Wednesday. Image Credit: AFP

Mumbai: India's central bank announced loan repayment relief as well as steps to boost credit to key sectors as policy makers sought to cushion the blow on the economy from the world's worst outbreak of virus infections.

The Reserve Bank of India will provide loan relief to some small businesses for a period of up to two years to keep them going through the pandemic period, Governor Shaktikanta Das said in an unscheduled address on Wednesday. The central bank will give 500 billion rupees ($6.8 billion) of liquidity support to banks for lending to vaccine makers, hospitals and providers of health services.

Das has been meeting with bankers and shadow lenders in recent weeks to discuss the economic situation, possible stress to balance sheets and credit flow in the system. Localized lockdowns imposed by Indian states to flatten the world's fastest rising pandemic curve has already begun hurting businesses and jobs, with potential to inflate bad loans at Indian banks.

Highlights of new relief measures

RBI permits limited KYC [know your customer requirements] to be used till December 1, 2021.

Small finance banks allowed to on-lend to smaller microfinance institutions of asset size up to ₹5 billion.

The moratorium will be available to individuals and small and medium enterprises that have not restructured their loans in 2020 and were classified as standard accounts till March 2021.

'Small borrowers up to ₹250 million  exposure get a new restructuring window. For past restructured loans, moratorium can be extended.

Banks will also be eligible to park surplus liquidity with RBI to the extent of Covid loan book, says governor Shaktikanta Das.

On-tap liquidity of ₹500 billion at repo rate is being opened till March 31, 2022, says Das.

Under the scheme banks can support entities including vaccine manufacturers, medical facilities, hospitals and also patients, says Das. Such lending will get priority sector classification till repayment or maturity.

Forex reserves stood at $588 billion as of March 30, 2021, and this gives us the confidence to deal with global spillovers.

RBI will continue to monitor the emerging COVID-19 situation and will deploy all resources and instruments at its command especially for the citizens, business entities, and institutions beleaguered by the 2nd wave, says RBI Guv.