In a bid to support revival of sectors hit most by the COVID-19 pandemic, the Reserve Bank of India (RBI) announced a separate on-tap liquidity window of Rs 15,000 crore with a tenor of 3 years at the repo rate to provide liquidity support to the contact-intensive sectors like restaurants, hotels and those involved in the tourism sector, among others.
"In order to mitigate the adverse impact of the second COVID-19 wave on contact intensive sectors, a separate liquidity window of Rs 15,000 crore is being opened till March 31, 2022, with tenors of up to 3 years at the repo rate," Shaktikanta Das, Governor, Reserve Bank of India (RBI), said.
Under the scheme, banks can provide fresh lending support to hotels, restaurants, tourism and travel operators, adventure and heritage facilities, aviation ancillary services (ground handling and supply chains) and other services that include private bus operators, car repair services, rent a car services providers, event/conference organisers, spa clinics and beauty parlours and saloons. These sectors have seen the biggest impact due to the second wave as authorities 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.
"By way of an incentive, banks will be permitted to park their surplus liquidity up to the size of the loan book created under this scheme with the Reserve Bank under the reverse repo window at a rate which is 25 bps lower than the repo rate or, termed in a different way, 40 bps higher than the reverse repo rate," Das said.
The hospitality and tourism sector welcomed the decision. Industry umbrella association FAITH said: “We had requested for a special priority and liquidity status for uptil at least 2024 considering that this sector is the worst hit and recovery will only happen by then. Accordingly, We had asked for a tourism corpus to be set up at closest to repo rates, which is the rate at which banks borrow and which we seemingly have been given to borrow on the same rate - never before done for any sector earlier,” Aashish Gupta, CEO, FAITH said in a communique and added that the banks are being incentivised too to lend at this rate. “Hopefully the fine print and the execution of the commercial banks on the ground is equally accommodating,” he opined.
“This is the first significant sign indicating that the government has taken note of the severe effect that the pandemic has had on the hospitality industry and the huge economic impact it will have on the sector as well as the nation,” Gurbaxish Singh Kohli, VICE President, FHRAI, commented.
The announcement made by the RBI today on opening a separate liquidity window of Rs. 15,000 crores till March 31, 2022 for severely impacted sectors including hotels and restaurants is a welcome move. “However, given the inherent stress in the hospitality space and the fact that credit risk will continue to remain with the banks unlike with ECLGS, the actual benefit for the sector from the aforesaid liquidity window remains to be seen," Vinutaa S, Assistant Vice President and Sector Head, ICRA, said.