The RBI rolled out another set of measures to counter the economic slowdown amid the lockdown. RBI Coronavirus lockdown relief package second roll out may help solve difficulties faced by many sectors in India.
Relief Package 2.0
RBI Governor Shaktikanta Das announced a slew of measures aimed at maintaining adequate liquidity and ease financial stress in the economy. The media address has come after a steep fall in rupee and other volatilities in financial markets.
Repo Rate Cut
On 15 April, banks had parked as much as ₹6.9 trillion with RBI. Therefore, keeping the repo rate unchanged, the Central Bank has cut the reserve repo rate by 25 basis points to 3.75 percent. This is to encourage banks to divert funds to the productive sectors of the economy rather than parking them with the RBI.
Refinancing to Aid Relief Package 2.0
Further, the RBI has decided to infuse 50,000 crores in the system. It will provide Rs 25,000 crore to NABARD, Rs 15,000 crore to SIDBI, and Rs 10,000 crore to NHB. Shaktikanta Das stated that the decision would facilitate refinancing commercial banks along with providing liquidity to the housing market.
That apart, Shaktikanta Das also announced conducting targeted long-term REPO operations (TLTRO) 2.0 worth Rs 50,000 crore. This measure is to benefit NBFCs and micro-financial institutions. Besides, NBFCs providing funds to real estate companies will be given similar benefits as of scheduled commercial banks.
Increase in Ways and Means Limit
The Central bank has also increased the ways and means limit for the second time from 30% to 60%, empowering the states to borrow adequately to fight the COVID-19 crisis. This limit will be valid until September 2020.
Restrictions on Dividend Payouts
The governor has asked banks not to make any dividend payments to shareholders for the financial year ended March 2020 due to ongoing financial situation. The restriction will be reviewed in the second quarter of 2021.
LCR (Liquidity Coverage Ratio)
The RBI has decided to reduce LCR (Liquidity Coverage Ratio) requirement for all scheduled commercial banks from 100% to 80%. The relief package 2.0 decision will be carried in a phased manner with a target of achieving 90% LCR by 1st October 2020 and 10% by April 1, 2021.
Relaxations to NBFCs for Real Estate Loans
The RBI has extended the benefit of deferring Date of Commercial Commencement of Operations (DCCO) of realty projects for one year (for reasons outside the promoter’s control) to NBFCs. This was only applicable to commercial banks earlier.
Extension of Resolution Timeline
RBI has also decided to extend stressed assets resolution for 90 days. Earlier, according to the circular dated June 7 by RBI, the banks were required to set aside 20 percent provision. In case of not being able to resolve accounts within 210 days from the date of default or 180 days from turning an NPA.
Changes in NPA Classification
The RBI has announced the exclusion of the moratorium period from the 90-day NPA norm. As a result, the classification of assets would be standstill for all such accounts from March 1, 2020, to May 31, 2020. This has come as a relief for NBFCs.
Experts Take on the Measures
Booster for MSMEs
Experts believe that the announcement for providing Rs 50,000 crores to MSMEs will give a boost to the sector. With the lockdown extended, MSMEs were not even able to carry out their normal operations. This tightened their liquidity positions along with squeezing their potential profits for six months. The liquidity infusion will come as a relief to MSMEs. Not only this, but the additional liquidity would also provide an impetus for economic recovery with a special focus on SMEs and the agriculture sector.
Also, the three-month exclusion of NPAs from the moratorium period is a welcoming measure. The decision would give space to lenders and borrowers to stabilize from the unexpected Coronavirus pandemic.
Global Economy in Worst Recession
Shaktikanta Das stated that though exports in March 2020 contracted to 34.6%, the level of Foreign Exchange Reserves continued to be robust. Also, he adds that the global economy is to see the worst recession due to the Coronavirus pandemic. Besides, he also said that the government is considering a proposal for payroll support relief for MSME workers. Further, he said that the main objective of these changes is to ensure a sound financial system while directing cash to the most vulnerable sections of society.
In all, with the heightened uncertainty in the economic system, the Central Bank hopes that the decisions would ease the financial stress of the economy.