The Reserve Bank of India (RBI) Governor Shaktikanta Das announced additional measures, including reducing reverse repo rate, to support the economy hit by COVID-19 on April 17.
This was the RBI Governor’s second press briefing since the spread of COVID-19 in India. In his previous address on March 27, Das had announced a rate cut of 75 basis points and several other measures to support the Indian financial system.
RBI has injected funds equalling 3.2 percent of GDP into the economy to tackle the liquidity situation, governor Das said.
Here are the key takeaways from the central bank’s address to the media:
To conduct TLTRO 2.0: RBI will conduct TLTRO 2.0 for an aggregate amount of Rs 50,000 crore, to begin with.
“At least 50 percent of the amount must go to the mid and small-sized NBFCs and MFIs. Exposure in this facility will not be reckoned under the large exposure framework. TLTRO 2.0 investments may be classified as HTM (held to maturity),” RBI governor said.
Change in reverse repo rate: The RBI cut the reverse repo rate by 25 bps to 3.75 percent from 4 percent with immediate effect under the liquidity adjustment facility (LAF). The policy repo rate, marginal standing facility rate and bank rate remain unchanged.
NPA norm to exclude the moratorium period: The RBI governor said it recognises that COVID-19 has challenged the ability of borrowers to repay. So, the 90-day NPA norm shall exclude the moratorium period. “Banks to maintain higher provision at standstill, which can be adjusted later for actual slippages,” governor Das said.
Das said NBFCs can grant relaxed NPA classification to their borrowers. However, banks are required to maintain additional provisioning of 10 percent on standstill accounts, RBI said, adding that banks must provide more for accounts availing moratorium.
Period of resolution plan for NPAs to be extended by 90 days. Also, banks will maintain higher provision at standstill, which can be adjusted later for actual slippages, RBI said.
Loans given by NBFCs to commercial real estate will also get the same relief. This is to ease NBFCs and the real estate sector. New measures shall be announced as and when the need arises, RBI governor said.
No dividends from banks: RBI said banks shall not declare dividends until further notice.
LCR requirement brought down: LCR (liquidity coverage ratio) requirement of scheduled commercial banks was brought down from 100 percent to 80 percent with immediate effect. This shall be restored to 90 percent by October 2020 and 100 percent by April 2021, RBI said.
Silver lining: Das highlighted that India is estimated to have the highest growth among G20 countries, as per IMF.
“Macro landscape has deteriorated in some areas, but the light shines through in others. The macroeconomic financial landscape has deteriorated precipitously in some areas since our last address. India is amongst the handful of countries to have positive GDP growth,” said Das.
India is projected to cling on to growth at 1.9 percent and is likely to post a sharp turnaround in FY22 with 7.4 percent growth, as per IMF.
Das highlighted that the pre-monsoon kharif sowing has been aggressive and IMD has forecast a normal southwest monsoon on April 15. These are early developments and bode well for rural demand.
Special refinance facility: RBI will provide special refinance facilities of Rs 50,000 crore to NHB, SIDBI & NABARD. Of Rs 50,000 crore, Rs 25,000 crore will go to NABARD, Rs 15,000 crore to SIDBI and 10,000 crore to NHB.Increase in WMA limit: The ways and means advances (WMA) limit of state governments was increased by 60 percent and it will be available till September 30, 2020.