Amidst continued volatility in the financial market in wake of coronavirus pandemic, the Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced additional liquidity measures, including reducing reverse repo rate and TLTRO to relieve pressure on an economy ravaged by the COVID-19 crisis.
Here are key takeaways from the RBI Governor's second press briefing since the spread of COVID-19 in India.
India growth projection
Citing IMF global growth projections, the RBI Governor said that India is projected to achieve a positive growth of 1.9 per cent in FY20, highest growth rate among the G-20 economies. For 2021, the IMF projects sizable V-shaped recoveries: close to 9 percentage points for global GDP. India is expected to post a sharp turnaround and resume its pre-COVID pre-slowdown trajectory by growing at 7.4 per cent in 2021-22.
RBI has injected funds equalling 3.2 per cent of GDP into the economy since the February 2020 monetary policy meeting to tackle the liquidity situation. Systemic liquidity surplus, as reflected in net absorptions under the Liquidity adjustment facility (LAF), averaged Rs 4.36 lakh crore during the period March 27- April 14, 2020. On April 15, the amount absorbed under reverse repo operations was Rs 6.9 lakh crore. As a result, surplus liquidity in the banking system has increased sharply in the wake of sustained government spending.
25 bps cut in reverse repo rate
The RBI announced a 25 basis points cut in reverse repo rate, the rate at which the RBI borrows money from banks by lending securities, to 3.75 per cent versus 4 per cent earlier, to ensure surplus liquidity in the system. The central bank, however, kept policy repo rate unchanged at 4.40 per cent, and the marginal standing facility rate and the Bank Rate unchanged at 4.65 per cent.
TLTRO 2.0 of Rs 50,000 crore for NBFCs, MFI
The central bank announced targeted long-term repo operations (TLTRO 2.0) of Rs 50,000 crore to ensure that small and mid-sized corporates, including non-banking financial companies (NBFCs) and micro finance institutions (MFIs) get enough liquidity. The funds availed by banks under this scheme will be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 per cent of the total amount availed going to small and mid-sized NBFCs and MFIs.
WMA limit of States hiked by 60 per cent
The RBI announced an increase in the Ways and Means Advances (WMA) limit of the States by 60 per cent over and above the level as on March 31, 2020, to provide greater comfort to undertake COVID-19 containment and mitigation efforts and enable them to better plan their market borrowings. The increased limit will be available till September 30, 2020.
Rs 50,000 crore refinancing facilities for NABARD, SIDBI and NHB
The RBI has been decided to provide special refinance facilities for a total amount of Rs 50,000 crore to all India financial institutions (AIFIs) such as NABARD, SIDBI and NHB to enable them to meet sectoral credit needs. This will comprise Rs 25,000 crore to NABARD for refinancing regional rural banks (RRBs), cooperative banks and micro finance institutions (MFIs); Rs 15,000 crore to SIDBI for refinancing; and Rs 10,000 crore to NHB for supporting housing finance companies (HFCs). Advances under this facility will be charged at the RBI's policy repo rate at the time of availment.
NPA classification period changed to 180 days
In a bid to provide relief to borrowers, the RBI has decided to provide an asset classification standstill for standard accounts that avail a moratorium between 1 March and 31 May. This means that the bad loan classification period changes to 180 days for all such accounts from 90 days.
Restriction on dividend distribution
In view of the COVID-19-related economic shock, the RBI has decided that scheduled commercial banks and cooperative banks shall not make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions. This restriction shall be reviewed on the basis of the financial position of banks for the quarter ending September 30, 2020.
NBFC loans to commercial real estate projects get relief
In terms of the extant guidelines for banks, the date for commencement for commercial operations (DCCO) in respect of loans to commercial real estate projects delayed for reasons beyond the control of promoters can be extended by an additional one year, over and above the one-year extension permitted in the normal course, without treating the same as restructuring. It has now been decided to extend similar treatment to loans given by NBFCs to commercial real estate. This will provide relief to NBFCs as well as the real estate sector.