RBI Allows Banks to Provide Fresh Lending Support to Covid-Affected Sectors

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The Reserve Bank of India (RBI) has finally come to the rescue of the country’s travel and tourism, hospitality, and aviation sectors, which were worst affected in the wake of the Covid-19 pandemic.

The RBI has allowed banks to provide fresh lending support up to Rs 15,000 crore to these segments of the economy at a lower interest-bearing repo rate of 4 percent currently.

RBI Governor Shaktikanta Das said that the on-tap facility would help mitigate the adverse impact of the second wave of the pandemic on certain contact-intensive sectors.

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A separate liquidity window of Rs 5,000 crore is opened till March 31, 2022, with tenors of up to three years at the repo rate, an RBI statement said.

Under the scheme, banks can provide fresh lending support to hotels and restaurants; tourism – travel agents, tour operators, and adventure/heritage facilities; aviation ancillary services – ground handling and supply chain; and other services that include private bus operators, car repair services, rent-a-car service providers, event/conference organizers, spa clinics, and beauty parlors/salons, the statement added.

In order to incentivize banks for this liquidity offering to affected sectors, the RBI has allowed them to park their surplus liquidity up to the size of the loan book created under this scheme with the central bank under the reverse repo window at a rate which is 25 bps lower than the repo rate.

This will offer banks an interest rate that is still 40 bps higher than the reverse repo rate on their surplus funds.

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