A reduction in reverse repo rate, Targeted Long-Term Repo operation (TLTRO) 2.0, are among efforts to increase liquidity.
By Vivek Kumar M
Keeping up with the expectations of Non-Banking Finance Companies (NBFCs) and Micro Finance Institutions (MFIs), the Reserve Bank of India (RBI), announced several liquidity measures to ensure their healthy functioning amid the COVID-19 pandemic.
In its second TLTRO announcement, RBI is set to infuse banks with around Rs. 50,000 crores liquidity fund. It hinted at increasing the amount if required.
“The RBI has provided a welcome relief to NBFCs and HFCs in the form of liquidity boosters, which will benefit both housing and commercial real estate. The liquidity provisions made by RBI through Rs 50,000 TLTRO deployment will enable HFCs and NBFCs to raise financing through bonds, commercial papers etc,” said Mr Ravindra Sudhalkar, CEO at Reliance Securities in a press note.
Under TLTRO, RBI provides banks with funds at the existing repo rate for the term of one to three years and the banks have to invest the amount in specified instruments. In case the funds are not deployed within 30 days, RBI penalizes the banks as per its guidelines.
RBI also announced 25 basis points reduction in reverse repo rate bringing it down from 4 per cent to 3.75 per cent. The repo rate remains unchanged at 4.40 per cent. The move aims to discourage banks from parking its money with RBI and use it for lending instead.
The apex bank had earlier announced a three-month moratorium period allowing deferment on loan repayments during the period. RBI has now clarified that this 90-day period will be excluded from Non-Performing Asset (NPA) classifications.
National spokesperson of Indian National Congress (INC), Sanjay Jha, warned of mounting defaults and the health of banks due to this move.
I hope so #RBI, but most unlikely rebound of such magnitude. Some sectors will recover, but the banking system will be in life support on account of mounting defaults. That’s the crux.— Sanjay Jha (@JhaSanjay) April 17, 2020
The optimism is misplaced. https://t.co/Gb6tiR6F9n
A Rs. 50,000 crore package has been announced for National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI) and National Housing Banks (NHBs) to boost regional and rural banking demands.
This is the second set of measures announced by RBI amid the lockdown due to COVID-19 pandemic. In a press conference in the last week of March, RBI had brought down the repo rate by 75 basis points to 4.40 per cent.
Stock markets today opened over 1000 points or three per cent higher at 31,656 points ahead of the RBI governor’s press conference amid COVID-19 pandemic. Of the 1500 stocks in the National Stock Exchange (NSE), 1425 opened in green as the markets were high on hopes of a stimulus package.
RBI governor, Shaktikanta Das started the press conference by terming COVID-19 as a trial of its time for humanity and said that the mission was to do whatever it takes to flatten the curve.
He said, “Today, humanity faces perhaps the trial of its time as COVID-19 grips the world with its deadly embrace. Everywhere, as also in India, the mission is to do whatever it takes to prevent the epidemiological curve from steepening any further.”
The novel coronavirus has killed over 1.45 lakh people worldwide and infected over 2 million people. Various countries have imposed lockdowns to contain the spread of the virus and it has also resulted in shutting down of economic activity.
Trademark index Sensex has fallen over 10,000 points this year and is currently trading at over 31,000 mark.