RBI opens new window for banks to lend to contact-intensive segments

 Reserve Bank of India (RBI) had decided to open a separate liquidity window of Rs15,000 crore to cater to the financing needs of contact-intensive segments over the medium term, of up to three years at the repo rate till 31 March 2022. 

The new window, announced in RBI’s Statement on Developmental and Regulatory Policies on 4 June, will be available for sectors like 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 organisers, spa clinics, and beauty parlours/saloons.
Under the scheme, banks are expected to create a separate Covid (Corona) loan book. By way of an incentive, such banks will be eligible to park their surplus liquidity up to the size of the Covid loan book created under this scheme with the RBI under the reverse repo window at a rate which is 25 bps lower than the repo rate.
Banks desirous of deploying their own resources without availing funds from the Reserve Bank under the scheme for lending to the specified segments will also be eligible for the incentive scheme.
The operational details of the On-Tap Liquidity Window for contact-intensive segments are as under:
  • The scheme will remain operational from 7 June 2021 till 31 March 2022;
  • All banks eligible under the Liquidity Adjustment Facility can participate in the scheme; 
  • Requests from banks desirous of availing funds from the RBI will be subject to availability of funds as on the date of application, ie, funds cannot be guaranteed in case the total amount of Rs15,000 crore is already availed; 
  • Banks should endeavour to lend within a reasonable period, ie, not later than 30 days from the date of availing the funds from the RBI. There is no tenor restriction regarding lending by banks under the scheme; 
  • Banks will have to ensure that the amount borrowed from RBI should at all times be backed by lending to the specified sectors till maturity of the scheme;
  • The scheme will be operationalised on tap. Banks can place requests for funds in the format enclosed in Annex-2, through e-mail. RBI will aggregate all such requests received and release funds every Monday (on the subsequent working day if Monday is a holiday) by initiating a 3-year repo contract with the requesting bank;
  • If a bank places multiple requests during the week, all such requests will be aggregated, and a single repo contract will be created on the date of operation;
  • In case the requested amount exceeds the remaining amount under the scheme on the date of operation, the remaining amount will be distributed on pro-rata basis among all the eligible requests;
  • RBI reserves the right to decide the quantum of allotment and /or accept/reject any or all of the requests, either wholly/partially, without assigning any reason thereof;
  • The eligible collateral and margin requirements will remain the same as applicable for LAF operations. The requesting bank must ensure that sufficient amount of securities is available in its Repo constituent account on the date of operation. All other terms and conditions as applicable to LAF operations, including facility for security substitution, will also be made applicable to the scheme, mutatis mutandis;
  • Banks can park their surplus liquidity up to the size of the Covid loan book, created under this scheme, in a special 14-day reverse repo window to be conducted on each reporting Friday between 12:30 PM and 1:00 PM. The first such operation will be held on 18 June. These 14-day reverse repo operations would continue till 31 March 2022 and will be reviewed thereafter. Banks are required to ensure scrupulous compliance with the above conditions prior to parking of funds in the special 14-day reverse repo window;
  • Banks desirous of deploying their own resources without availing funds from the RBI under the scheme will also be eligible for the facility stipulated above. Banks deploying their own resources for lending to the specified segments are required to keep the Financial Markets Operations Department informed by e-mail about any changes in the Covid loan book during the previous week on every Monday till closure of the scheme;
  • The amount utilised under the scheme will be informed to market participants in the Money Market Operations (MMO) press release.