RBI announcements today: RBI announces second tranche of liquidity boost; cuts reverse repo by 25 basis points, TLTRO 2.0 for NBFCs

The RBI today announced a second tarnche of liquidity boost for the economy wth a 25 basis point reverse repo cut taking it to 3.75 per cent from 4 per cent earlier. The move has been taken to allow banks to lend more.

It also announced relaxation of asset classification norms. Those accounts that have availed the moratorium facility, the period of moratorium will be excluded from the 90-day NPA classification norms of the RBI.

The RBI said that it will continue to monitor the situation closely and its objective is to keep the financial sector moving smoothely.

The Reserve Bank of India had àlready announced Rs 3.74 lakh crore worth of liquidity measures in the last week of March. These included a special Targeted Long Term Repo Operations (TLTRO) window of Rs one lah crore for banks to invest specifically in corporate bonds and commercial papers. It also reduced the repo rate by 75 basis points and the reverse repo by a larger margin of 90 basis points, thereby making it less lucrative for banks to park money with the RBI. It also reduced the CRR by 100 basis points, thereby leaving more money in the hands of the banks to lend to customers.

It had also announced moratorium of three months for term loans but a lot of NBFCs were struggling to met their obligations as the moratorium norms were being interpreted differently by different banks.

The RBI had also increased the limit by 30% for short term boorowing by states/UTs under Ways and Means Advances in order to help them to tide over the financial crucnh being faced on account of lesser revenue generation due to lockdown.

The RBI’s announcement comes in the wake of downgrading of economic growth in the current fiscal. The World Bank has forecast India’s economic growth at 1.5-2.8 per cent in 2020 while the IMF has predicted the growth to slip to 1.5 per cent. Barclays has projected zero growth for 2020.

Prime Minister Narendra Modi met finance minister Nirmala Sitharaman on Thursday amid talks of another stimulus for the industry especially the struggling MSME sector.

ig takeaways:

1. Humanity faces trial of its time. RBI has been proactive and monitoring situation closely. Mission is to do whatever it takes.

2. Since March 27, situation deteriorated precipitously in some areas but light shines in others. IMF has projected a bleak scenario for the world. India is one of the only few countries that will cling on to some amount of positive growth.

3. India expected to post sharp recovery

4. IMD has forecast a normal monsoon. These are early developments which support rural demand.

5. No reason for getting misled by IIP data as impact of Covid-19 will be captured later.

6. Contraction in exports at -34.6% is munch serious than global financial crisis. Level of forex continues to be robust.

7. Payment infrastructure working seamlessly. ATM operations stood at 91 per cent of full capacity.

8. Rs 1,20,00 crores of fresh currency supplied to chests since March 1.

9. From Feb 6 till March 27 RBI had injected liquidity worth 3.2% of GDP.

10. Systemic liquidity absorption at Rs 4.36 lakh crore during March 27-April 14.

11. In response these options, financial conditions have eased as reflected in yields. Redemption pressure on MFs eased.

12. Objectives of today’s announcements: To maintain adequate liquidity in system, facilitate credit flows, ease financial stress, enable smooth functioning of markets.

13. As of now, the Targeted liquidity window is being channeled largely to PSU bonds. Disruption by Covid-19 is mostly to mid-sized corporates.


* TLTRO 2.0 of Rs 50,000 crore to see various segments of MFIs, NBFCs remain well lubricated. Should be invested in NBFCs and mid-sized corporates. Half of it should flow into NBFCs. Investments should be made within one month. These may be classified as HTM. Exposures not to be reckoned under large exposure framework. TLTRO of Rs 25,000 crore to be conducted today.

*Refincanicng facilities: NABARD, SIDBI, NHB meet imprtant requirement in meeting liquidty. Raise money from markets. Special refinance facility of Rs 50,000 crores to meet sectoral credit requirements.

*LAF: The surplus liquidity in banking has risen significantly. Amount under reverse repo is at Rs 6.9 lakh crore on April 15. That much of suplus is available with banks. To encourage banks to deploy, reduce reverse repo by 25 bps from 4% to 3.75%. Policy repo rate remains unchanged at 4.4%.

*Under WMA, states’ borrowing limit increased to 60%

Regulatory measures:

*Asset classification: In respect to accounts granted moratorium, NPA norms of 90 days relaxed. The period of moratorium will be excluded from the 90 day classification norms of NPAs for those accounts which have availed the moratorium facility. NBFCs have flexibnility to give such relief to their borrowers.

*Banks have been asked not to make dividend payout until further announcements.

*LCR: LCR requirement for scheduled commercial banks will be brought down from 100 per cent to 80 per cent with immediate effect.

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