The Reserve Bank of India (RBI) announced the creation of a special liquidity window of INR 15,000 crore to provide liquidity support to the contact-intensive sectors hit by the pandemic. This special liquidity window encourages banks to provide fresh lending support to hotels, restaurants, tourism, aviation ancillary services, and other services including private bus operators, car repair services, rent-a-car service providers, event and conference organisers, spa clinics, and beauty parlours and saloons. These sectors have most impacted since March 2020 and more after the second wave, when state governments started imposing lockdown measures to curb the spread of the virus.
These sectors will be permitted to park their surplus liquidity, equivalent to the size of the loan book created by them under this scheme, under the reverse repo window at a rate which is 25 basis points (bps) lower the repo rate, or 40 bps higher than the reverse repo rate.
“To mitigate the adverse impact of the second wave of the pandemic on certain contact-intensive sectors, a separate liquidity window of INR 15,000 crores is being opened till March 31, 2022 with tenures of up to three years at the repo rate,” said Shaktikanta Das, RBI governor in Mumbai after a meeting of the monetary policy committee.
VOTE OF APPROVAL
This announcement was met with delight by the hospitality, travel and tourism industry. Gurbaxish Singh Kohli, VP of Federation of Hotel & Restaurant Associations of India (FHRAI) noted that this is the first significant sign indicating that the government has taken note of the severe economic effect that the pandemic had on the hospitality industry. It was at the brink of collapse with revenues dwindling to below 10% of pre-COVID levels.
He added that infusing liquidity would provide much-needed liquidity support to cash-strapped businesses in the sector, without which many businesses were unlikely to survive. However, Kohli requested RBI to extend the tenure for at least five years.
“The three-year duration is insufficient to recover from the financial turbulence that the industry is undergoing. We are also relieved with the RBI’s decision to double the maximum aggregate exposure to INR 50 crore, enabling a larger set of borrowers to avail of the benefits under Resolution Framework 2.0,” he stated.
KB Kachru, Vice President of the Hotel Association of India (HAI) called the liquidity window a major relief to the hospitality industry, which was amongst the most stressed sectors during the pandemic with stakeholders requesting for such a relief to be provided urgently. “Ailing hotels will be able to save related jobs, lives and livelihoods. Hotel loans are lesser likely to become NPAs. The announcement will mitigate the adverse impact of the second wave and certainly underpin the sector’s road to recovery,” he added.
The Indian Association of Tour Operators (IATO) also welcomed RBI’s announcement and hoped that tour operators who have had almost zero income for past more than one year would get some succour. “We request the government to announce Service Export Incentive Scheme (SEIS), which is pending for the financial year 2019-20. Besides, we expect some grant for the revival of the battered tourism sector and rationalisation of GST,” stated Rajiv Mehra, President of IATO.
To mitigate the impact of the second wave, RBI has announced other relief measures. This includes expanding the coverage of borrowers under the restructuring 2.0 scheme. Now, MSMEs, non-MSMEs, small businesses, and loans to individuals with aggregate exposure of INR 50 crore will be eligible for restructuring. Earlier, the threshold was set at INR 25 crore.
