Following the central government’s decision to extend the nationwide lockdown till May 3, the Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced a string of relief measures for the stressed banking and financial sector. Das announced a cut in the reverse repo rate by 25 basis points (bps) to 3.75 per cent. However, he kept the repo rate unchanged.
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In terms of other measures, the governor said that RBI will begin with giving an additional Rs 50,000 crore through targeted long-term repo operation (TLTRO) to be undertaken in tranches. Apart from this, he announced a re-financing window of Rs 50,000 crore for financial institutions like NABARD, National Housing Bank and SIDBI.
Das said that the central bank is closely monitoring the situation developing out of COVID-19 outbreak. He added that banks and financial institutions have risen to the occasion to ensure normal functioning during the outbreak of the pandemic.
He also said that the projection by the International Monetary Fund (IMF) of 1.9 per cent GDP growth for India is highest in the G20. Das, quoting IMF projection, said India is expected to post a sharp turnaround in 2021-22.
Speaking about the industrial growth data, the central bank governor said that the impact of COVID-19 outbreak was not captured in the Index of Industrial Production (IIP) data for the month of February, which was released earlier this month. The IIP had expanded by 4.5 per cent on-year to 133.3 in February.
Speaking on the inflation data, Das said that it is on a declining trajectory and could fall below RBI’s 4 per cent target by the second half of this fiscal. He pointed out that the consumer price index (CPI) or the retail inflation has fallen by 170 bps from its January 2020 peak. The retail inflation for March fell to a four-month low of 5.91 per cent, while the wholesale inflation eased to 1 per cent.
Das added that such an outlook would make policy space available for addressing the intensification of growth risks and financial stability brought about by COVID-19.
In his nearly 30-minute long speech, Das also mentioned that automobile production and sales declined sharply in the month of March and the demand for electricity has fallen sharply. Speaking about the exports, he said the contraction in exports in March at 34.6 per cent was more severe than the global financial crisis of 2008-09.
About the day-to-day banking operations, Das said that there has been no downtime of the internet or mobile banking during the ongoing lockdown and the banking operations normal. He also said that the surplus liquidity in the banking system has increased substantially as a result of the central bank’s actions.
This was the second time that the governor addressed the media since the nationwide lockdown was imposed from March 25.
On March 27, the RBI held a historic pre-term Monetary Policy Committee (MPC) meeting where the repo rate was cut by a record 75 bps. The repo rate was reduced to a 15-year-low of 4.40 per cent and was also the steepest cut since October 2004.
On the same day, the central bank cut the cash reserve ratio by 100 bps to 3 per cent apart from announcing various measures to boost liquidity in the system.
How industry and market experts reacted
“The RBI has shown pragmatism while announcing the second round of measures, aimed at maintaining liquidity and incentivizing credit flows. Banks are required to invest a significant portion of the TLTRO with NBFCs & MFIs, is positive as they have been hit significantly. Relief packages of Rs 50,000 crore allotted to NABARD, SIDBI and NHB combined with the reduction in reverse repo rate will incentivize banks and NBFCs to step up their lending activities. Additionally, the 90 day NPA norm won’t be applicable to loans where the moratorium is granted. This along with 1-year extension on loans given to the real estate sector will help preserve asset quality,” Jaspal Bindra – Executive Chairman, Centrum Group said.
“RBI has come out with announcements with far-reaching beneficial consequences to the financial system and the economy in this difficult time. Measures to maintain adequate liquidity in the system, incentivise further commercial bank lending by cutting reverse repo rate to 3.75 per cent and facilitating normal functioning of markets are indeed laudable. Particularly, the announcement of LTRO 2 of Rs 50,000 crore for targeted funding to NBFCs and MFIs will be beneficial for this segment. Refinancing of Rs 50,000 crore to NABARD, SIDBI and NHB is another welcome move. The reclassification of NPA norms from 90 days to 180 days is a great relief to commercial banks. In brief, this is a big bazooka but with caution and prudence. Enhancement of Ways & Means advances to states by 60 per cent will be a relief to states stressed by the pandemic,” Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said.
“Among the various measures announced, commendably its allotment of Rs 10,000 crore to National Housing Bank is a big move for the real estate sector reeling under the liquidity crisis. It will help provide capital to HFCs and eventually provide major relief to developers battling liquidity issues in COVID-19 times. Also, in another major relief to developers, the RBI has further extended the date of commencement of commercial operations (DCCO) of project loans for commercial real estate projects which are delayed for reasons beyond the control of promoters. This is indeed a big move and will bring much-needed relief to cash-starved developers. It will help in easing out time for maintaining and managing cash flows for these developers,” Anuj Puri, Chairman – Anarock Property Consultants said.
“NBFCs are clear beneficiaries of these measures. For investors in banks, the provision of higher liquidity and relaxation in provisioning norms are welcome, but the bar on dividend distribution and new provisioning norms are negatives for the time being. While the RBI is doing its part in providing reliefs in the current times, the street could keep expecting more and there could also be some concern about the time it would take for these measures to have an impact at the ground level,” Dhiraj Relli, MD & CEO at HDFC Securities said.
– with inputs from PTI
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