The Reserve Bank of India (RBI) has announced the second set of measures to preserve financial stability and help put money in the hands of the needy and disadvantaged during the extended lockdown due to the COVID-19 crisis.
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Key-Points
The move by the Central Bank aims to maintain adequate liquidity in the system and its constituents in the face of COVID-19 related dislocations, facilitate and incentivize bank credit flows, ease financial stress, and enable the normal functioning of markets.
Measures announced by RBI:
- RBI has approved to conduct a second set of targeted long-term repo operations (TLTRO 2.0) for an initial aggregate amount of Rs.50,000 crore. This will facilitate funds flow to small and mid-sized corporates, including NBFCs and MFIs, who have been more severely impacted by the disruptions due to COVID-19.
- Special refinance facilities for a total amount of Rs.50,000 crore will be provided to National Bank for Agriculture and Rural Development (NABARD), the Small Industries Development Bank of India (SIDBI) and the National Housing Bank (NHB) to enable them to meet sectoral credit needs.
- Reverse repo rate has been reduced by 25 basis points (bps) from 4.0% to 3.75% with immediate effect. The move is to encourage banks to deploy surplus funds in investments and loans in productive sectors of the economy.
- Ways and Means Advances (WMAs) Limit of states and union territories (UTs) has been increased by 60% over and above the limit as on 31 March 2020. The aims are to provide support to states/UTs for undertaking COVID-19 containment and mitigation efforts, and also to help them plan their market borrowing programs better.
- RBI has decided that the payment moratorium period for the Non-Performing Assets (NPAs), which lending institutions have been permitted to grant as per RBI’s announcement on 27 March 2020, will not be considered while classifying assets as NPAs. Hence, NBFCs will have flexibility under the prescribed accounting standards to provide such relief to their borrowers.
- Resolution Timeline of stressed assets or accounts has been extended by 90 days.
- Scheduled commercial banks (SCBs) and cooperative banks shall not make any further dividend pay-outs from profits pertaining to FY 2019-20 in order to enable banks to conserve capital so that they can retain their capacity to support the economy and absorb losses in an environment of heightened uncertainty.
- Liquidity Coverage Ratio requirement for scheduled commercial banks has been brought down from 100% to 80% with immediate effect. It aims to improve the liquidity position for individual institutions.
- The treatment available for loans to commercial real estate projects with respect to the date for commencement for commercial operations (DCCO) has been extended to NBFCs, in order to provide relief to both NBFCs and the real estate sector.
