The Reserve Bank of India (RBI) on Friday stepped in with its second Covid-19 package, including measures to provide more liquidity to non-banking finance companies (NBFCs) and relaxing the classification norms for non-performing assets (NPAs), to boost the sagging economy and the financial sector.
RBI Governor Shaktikanta Das said that for all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm will exclude the moratorium period. This means there would an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020.
“NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers,” he said in a media conference. On March 27, the RBI, in its first package, had slashed the Repo rate by 75 basis points to 4.40 per cent, cash reserve ratio by 100 bps to 3 per cent and announced three-month moratorium on terms loans to support the economy.
Stating that Covid-19 has “severely impacted” small and mid-sized corporates, including NBFCs and micro-finance institutions, the RBI also slashed reverse repo rate — the rate at which the RBI borrows funds from banks – and enhanced the ways and means advances to the state governments to address their fund needs.
The central bank also decided to conduct targeted long-term repo operations (TLTRO 2.0) for Rs 50,000 crore in tranches of appropriate sizes. The funds availed by banks under this TLTRO should be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at 7 least 50 per cent of the total amount availed going to small and mid-sized NBFCs and MFIs.
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According to Das, the RBI has decided to provide special refinance facilities for a total amount of Rs 50,000 crore to 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 on-lending/refinancing and Rs 10,000 crore to NHB for supporting housing finance companies (HFCs).
In order to encourage banks to deploy surplus funds in investments and loans in productive sectors of the economy, the RBI has decided to reduce the fixed rate reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 4.0 per cent to 3.75 per cent with immediate effect. This will prompt banks to lend more money to various sectors instead of parking it with the RBI.
Providing more flexibility to states, the RBI has decided to increase the WMA (ways and means advances) limit of states by 60 per cent over and above the level as on March 31, 2020 to provide greater comfort to the states for undertaking COVID-19 containment and mitigation efforts, and to plan their market borrowing programmes better. On April 1, 2020 the RBI had announced an increase in the WMA limit of states by 30 per cent.
Further, in view of the Covid-19- related economic shock, the RBI has directed banks and cooperative banks should not make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions.
Das said the payment infrastructure is running seamlessly. “Banks have been required to put in place business continuity plans to operate from their disaster recovery (DR) sites and/or to identify alternate locations for critical operations so that there is no disruption in customer services,” he said.
“Our data show that there was no downtime of internet or mobile banking. On an average, ATM operations stood at over 91 per cent of full capacity. The average availability of Business Correspondents (BCs) is over 80 per cent,” he said.
Inflation to fall
On the economy, the Governor said, “since March 27, 2020, the macroeconomic and financial landscape has deteriorated, precipitously in some areas; but light still shines through bravely in some others.”
According to him, early developments suggest that inflation is on a declining trajectory, having fallen by 170 basis points from its January 2020 peak. 24. In the period ahead, inflation could recede even further, barring supply disruption shocks and may even settle well below the target of 4 per cent by the second half of 2020-21. “Such an outlook would make policy space available to address the intensification of risks to growth and financial stability brought on by COVID-19. This space needs to be used effectively and in time,” Das said.
However, Das said the contraction in exports in March 2020 at -34.6 per cent has turned out to be much more severe than during the global financial crisis.
The disruptions caused by COVID-19 have, however, more severely impacted small and mid-sized corporates, including NBFCs and micro finance institutions in terms of access to liquidity.
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