The Reserve Bank of India on Friday unveiled the second tranche of liquidity and regulatory measures that are aimed at defusing the Covid-19-induced crisis.
Announcing a slew of measures on Friday, the RBI also cut the reverse repo rate by 25 bps from 4 per cent to 3.75 per cent to discourage banks from deploying surplus funds with it. The quantum of surplus funds with banks can be gauged from the fact that on April 15, the RBI absorbed ₹6.9-lakh crore through reverse repo operations. The lower rate will help banks channelise liquidity in investments and loans to productive sectors of the economy. The reverse repo rate was last cut on March 27 from 4.9 per cent to 4 per cent.
The central bank said policy space would be available (read: repo rate cut) to address the intensification of risks to growth and financial stability brought on by Covid-19, with the possibility of retail inflation settling well below the target of 4 per cent by the second half of 2020-21.
In an online address, RBI Governor Shaktikanta Das, said: “Since March 27, 2020 when I spoke to you last, the macroeconomic and financial landscape has deteriorated, precipitously in some areas; but light still shines though bravely in some others.”
“The RBI will monitor the evolving situation continuously and use all its instruments to address the daunting challenges posed by the pandemic…Although social distancing separates us, we stand united and resolute. Eventually, we shall cure; and we shall endure,” he added.
Long-term repo operations
With the disruptions caused by Covid-19 severely impacting small and mid-sized corporates, including NBFCs and MFIs, the central bank said it will conduct targeted long-term repo operations (“TLTRO 2.0”) for an aggregate amount of ₹50,000 crore, to begin with, in tranches of appropriate sizes to address their liquidity requirements.
₹50,000-crore refinance
To strengthen the refinancing capacity of AIFIs, the RBI will provide special refinance facilities for ₹50,000 crore to the National Bank for Agriculture and Rural Development (₹25,000 crore for refinancing regional rural banks, cooperative banks and MFIs); the Small Industries Development Bank of India (₹15,000 crore for on-lending/refinancing); and the National Housing Bank (₹10,000 crore to support housing finance companies). The RBI also upped the ways and means advances (WMA) limit of States by 60 per cent over and above the level as on March 31 to provide them greater comfort for undertaking Covid-19 mitigation efforts, and to plan their market borrowing programmes better. The increased limit is available till September 30, 2020.
Breather on asset classification
The RBI said in respect of all accounts for which lending institutions grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA (non-performing asset) norm will exclude the moratorium period — there would be an asset classification standstill for all such accounts from March 1 to May 31.