European Central Bank (ECB) has reduced the capital buffer requirement for banks to allow them to lend more in these coronavirus-affected times. Chinese Central Bank has provided refinancing support to Covid-19 impacted sectors as well as lower lending rates for small businesses. Central Bank of Australia, the Philippines Central Bank and many others are relaxing rules for banking sector to help the industry.

While interest rate cut and bond buying to create additional liquidity is uniformly followed by all the central banks, the banking industry needs specific measures to help select industries fight the impact of the Covid-19.

In India, the total exposure of banks to Covid-19 hit sectors is in excess of Rs 11 lakh crore. The government, RBI, banks and the industry are in discussion to decide what best can be done given the current state of banks and the industry. Especially for sectors such as hospitality, tourism, trade, transportation, aviation which have been impacted directly. Micro, small and medium enterprises (MSMEs) are also impacted because of shortage of funds and the size of their businesses.

As per RBI's sectoral data, the loan outstanding against the trade (import and export industries) is the highest at Rs 5.19 lakh crore followed by MSMEs, where the outstanding loans are Rs 4.73 lakh crore. Transports operators owe Rs 1.41 lakh crore, and tourism, hotel and restaurants (Rs 45,394 crore).

The government, RBI, banks and industry representatives are already in discussion to provide relief to Covid-19 hit sectors. In fact, a relaxation in 90 days default norms before declaring them as NPAs would give relief to both the industry and the banks. The industry would continue to enjoy credit facility while the banks will not be required to make any NPA provisioning from their profits.

The current NPA at over 9.1 per cent ( Rs 9.36 lakh crore ) of total advances are already at an alarming level. In fact, the NPA provisioning pressure and the subsequent delay in resolution of these assets has been putting capital pressure on banks. Banks need capital for provisioning as well as growth to survive in the market.

The PM has already set up an economic task force which has to decide on an economic package for industries after talking to all the stakeholders. The Indian Banks Association (IBA), a representative body for banks,  is also working on sending its recommendations to the RBI for certain relaxation.

Experts suggest the RBI should look at broader relaxation from capital requirements like what the global central banks are doing rather than relaxing the NPA asset classification norms for select sectors.  

So far , the RBI has announced a long term repo auction of Rs 1 lakh crore to create liquidity for banks, which will help them to lend more. Similarly , the RBI has also announced buyback of bonds up to Rs 10,000 crore.