Continuing from when he signed off from the last press conference held on March 27, the RBI governor Shaktikanta Das announced measures that evoked positive response from the stakeholders including the stock markets.
The measures announced by the RBI took into account the state of the economy and the need for liquidity post April 20th when there could be relaxation in lockdown restrictions and post May 3rd when lockdown could be withdrawn.
The gist of the governor’s measures is as follows:
Reverse Repo Rate
The fixed reverse repo rate under liquidity adjustment facility (LAF) is reduced by 25 basis points to 3.75% from 4% with immediate effect.
Targeted Long Term Repos Operations (TLTRO) 2.0 of Rs 50,000 crore
The RBI announced TLTRO 2.0 of ₹50,000 crore with a provision to increase beyond this if needed. In order to help NBFCs and microfinance institutions (MFIs) banks are required to lend to NBFCs and MFIs. This measure will help smaller NBFCs, HFCs and MFIs to avail funds and remain liquid to commence their operations post May 3 when lockdown could be withdrawn.
Liquidity Coverage Ratio (LCR) reduced to 80%
The LCR coverage requirement for scheduled commercial banks is brought down to 80% from 100% with immediate effect. This would be restored to 90 percent by October 2020 and 100 percent by April 2021.
Ways and Means Advances (WMA) limit increased by 60%
The WMA limit of state governments is increased by 60 percent until September 30, 2020. This measure will help states to phase out their borrowings as well as borrow at lower rates.
Dividend Holiday for Banks
Banks have been given a dividend holiday until further notice to tide over the financial difficulties faced by them due to the pandemic.
90-day NPA Norm not to apply
In view of the moratorium granted on existing loans by banks, NBFCs and other lending institutions the 90-day NPA norm will not be applicable. The governor said, “Banks to maintain higher provision at standstill, which can be adjusted later for actual slippages.” Banks have also been asked to provide additional 10 percent till a review is made.
Special Refinance Facilities to NABARD, SIDBI and NHB
National Bank for Agriculture and Rural Development, Small Industries Development Bank of India and National Housing Bank will receive special refinance facilities of Rs 25,000 crore, Rs 15,000 crore and Rs 10,000 crore respectively amounting to Rs 50,000 crore for them to meet their sectoral credit needs.
NBFC Loans to Real Estate on par with Banks
Loans given by NBFCs to real estate companies to get similar benefit as given by scheduled commercial banks. NBFCs can extend loans to delayed commercial real estate projects without restructuring.
Additional Read:- Will Coronavirus Exacerbate India’s Economic Slowdown?
Booster Package for Small and Medium-sized Industries (SME)
The SME industries will receive a booster package of Rs 50,000 crore to help them recover from the effects of the lockdown.