Small businesses and self-employed individuals will find it difficult to repay their loans as cash flows dry up when retail stores in large markets are not operational. For this, RBI
has now introduced resolution framework 2.0, under which those who have not availed benefit of restructuring earlier and are standard till March 31, 2021 are now eligible for restructuring. For those who did avail of restructuring up to two years are now eligible for an extension of residual tenor up to two years. As was seen last year, working capital cycles do get stretched during such times. Thus, banks can review working capital requirements for small businesses.
While GST collections for March 2021 have hit an all-time high, tax collections are bound to take a hit in coming months as seen in loss of economic momentum in diesel sales in the month of April over March. However, state governments will have to spend on purchasing vaccines and health equipment, paying salaries and continuing with welfare schemes. Here, RBI
has eased overdraft limits and conditions for states.
For the Centre, RBI will be doing the second round of purchase under G-SAP 1.0 (government securities acquisition program) of Rs 35,000 crore on May 20. Bond yields did react favourably to this announcement. These are the first set of measures to mitigate the impact of the second wave. Our strategy for the second wave is more decentralised. Thus apart from RBI, states will also be announcing measures to mitigate the economic impact in coming months. A few states have made a beginning. The rest of the measures will follow.
(Sameer Narang is chief economist at Bank of Baroda. Views expressed in the article are personal.)
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.
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