Relief Measures Aimed at Further Broadbasing Bank Lending to Ameliorate Stress: SBI
Moneylife Digital Team 29 June 2021
The announcement pertaining to economic relief for the pandemic announced by the Union government broadly emphasises four sectors—health, tourism, micro finance institutions (MFIs) and agriculture while the other measures announced fine-tune the scope of the already existing arrangement, says a research note.
 
In the report, State Bank of India (SBI) says, "The fiscal impact of announcements made on Monday and earlier is not linear as a substantial portion of the package is contingent liabilities. Ignoring these, the immediate impact will be slightly more than Rs1.23 lakh crore, which will be around 0.6% of the gross domestic product (GDP)."
 
Union finance minister (FM) Nirmala Sitharaman on Monday announced a stimulus package of Rs6.29 lakh crore with focus on heath infrastructure, tourism, employment, fertiliser subsidy, food grains to the poor, and exports. "While some of the measures are entirely new, the government has extended some of the earlier announced schemes. Overall, this is a timely relief provided by the government to the sectors or segments that were impacted most in the country primarily in the second wave of COVID-19," the report says.
 
 
Following the accommodation by Reserve Bank of India (RBI), the health sector has been given further impetus, by way of a guarantee cover of Rs50,000 crore, including 50% for expansion and 75% for new projects, for expansion and new projects related to health and infrastructure in cities other than eight metropolitan cities. 
 
For 124 aspirational districts (ADs), guarantee cover has been kept uniform at 75%. Maximum eligible loan amount will be Rs100 crore for a duration of three years. A similar guarantee scheme of Rs60,000 crore for other sectors has also been announced. 
 
 
"Assuming equal distribution of the new announcement of Rs1.10 lakh crore, with 50% and 75% guarantee cover and a risk weight of 100%, banks may have a capital relief of around Rs7,500 crore, which can further generate credit of around Rs70,000 crore," says Dr Soumya Kanti Ghosh, group chief economic adviser of SBI.
 
Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufacturers; importers or suppliers of vaccine and priority medical devices; hospitals and dispensaries; pathology labs and diagnostic centres; manufacturers and suppliers of oxygen and ventilators; importers of vaccines and COVID-related drugs; COVID-related logistics firms and also patients for treatment.
 
To further the flow of credit to weaker section of the society, guarantee will be provided to scheduled commercial banks (SCBs) for loans to new or existing non-banking finance companies (NBFC)-MFIs or MFIs for on lending up to Rs1.25 lakh to about 2.5 million small borrowers. Interest rate on such loans from banks will be capped at marginal cost of funds-based lending rate (MCLR) plus 2%.
 
Agriculture, the only sector that has cushioned the shock for COVID-19, has been also given vital support by way of better seeds and fertiliser subsidy announced earlier. Seed varieties tolerant to diseases, insects, pests, drought, salinity, and flooding, early maturing and, amenable to mechanical harvesting will be made available. 
 
Targeted crops include rice, peas, millet, maize, soybean, quinoa, buckwheat, winged bean, pigeon pea and sorghum. Furthermore, impetus has been given to agriculture sector in the North East by reviving North Eastern Regional Agricultural Marketing Corporation with a package of Rs77.45 crore.
 
RBI had earlier announced a special window for contact intensive sectors such as tourism, says Dr Ghosh, adding, these announcements complement the RBI announcement and propose working capital or personal loans to people in tourism sector to discharge liabilities and restart businesses impacted due to COVID-19. 
 
Loans will be provided with 100% guarantee and will cover 10,700 regional level tourist guides recognised by the ministry of tourism and tourist guides recognised by the state governments. The outlay is a part of the total Rs1.10 lakh crore loan guarantee scheme announced by finance minister Nirmala Sitharaman. Further five lakh foreign tourists’ visas will be issued free of charge.
 
"The outlay is a part of the total Rs1.10 lakh crore loan guarantee scheme, and no separate provision was announced. However, if we take maximum amount and maximum number of beneficiaries the outlay will be about Rs197.4 crore," SBI says in the report.
 
In terms of existing arrangement, the limit of admissible guarantee and loan amount under emergency credit line guarantee scheme (ECLGS) is increased above the existing level of 20% of outstanding on each loan and overall cap will be raised to Rs4.5 lakh crore. 
 
Atmanirbhar Bharat Rozgar Yojana has now been extended till 31 March 2022. To boost exports, additional corpus of Rs33,000 crore will be provided to the National Export Insurance Account (NEIA) over five years to support project exports and the equity base of Export Credit Guarantee Corp of India (ECGC) will be expanded to Rs88,000 crore over five years. The internal approval mechanism of public-private partnership (PPP) projects and asset monetisation will be streamlined for speedy approvals.
 
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