New RBI Developmental and Regulatory Policies

What is the News?

Recently RBI released a Statement on Developmental and Regulatory Policies. Under the new RBI policy, the RBI extended fresh support of ₹50,000 crores to the All India Financial Institutions for new lending in FY22. This will help to mitigate the impact of the pandemic and aid economic revival.

RBI policy on Assistance to Financial Institutions:

• NABARD: It will get a special liquidity facility(SLF) of ₹25,000 crores for one year. This is to support agriculture and allied activities, the rural non-farm sector, and non-banking financial companies-microfinance institutions(NBFC-MFI).
• National Housing Bank(NHB): It will get a ₹10,000 crores Special liquidity facility(SLF) for one year. This is to support the housing sector.
• SIDBI: It will get a ₹15,000 crores Special liquidity facility(SLF) for one year. This is to support funding of micro, small and medium enterprises (MSMEs).

Note: All these three facilities will be available at the prevailing policy repo rate.

RBI policy on Banks Lending to NBFCs as PSL:

• Bank lending to NBFCs (other than microfinance institutions) for the sectors that contribute significantly to the economy in terms of export and employment. This will continue as priority sector lending(PSL) till September 30, 2021.

Click Here to Read about Priority Sector Lending(PSL)

RBI policy on Asset Reconstruction Companies(ARCs):

• RBI will constitute a committee to undertake a comprehensive review of the working of Asset Reconstruction Companies (ARCs).
• As the ARCs grew in number and size the RBI decided to form a committee to study them. Especially their potential for resolving stressed assets was not yet realised fully.
• Hence, the committee will recommend suitable measures to meet the growing requirements of the financial sector.

About Asset Reconstruction Company (ARC):

• Asset Reconstruction Company(ARC) is a specialized financial institution. They will buy the Non-Performing Assets (NPAs) from banks and financial institutions. Further, they will clean up the balance sheets of banks and financial institutions. This helps banks to concentrate on normal banking activities.
• Legal Basis: Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 provides the legal basis for the setting up of ARCs in India.
• Regulated by: ARCs function under the supervision and control of the Reserve Bank of India.

Source: RBI