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Key Announcement by RBI Covid-19 Relief measures

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Key Announcement by RBI Covid-19 Relief measures

Date: 27 Mar 2020

Key Announcement by RBI : Policy Rates, liquidity and Regulatory forbearance

27th March’2020

RBI today announced sharp interest rate cuts, surpassing market expectations. In addition, the RBI also announced a series of measures to address the stress in the financial system caused by the Covid-19 crisis such as injecting liquidity in the system, ensuring credit flow, relaxation in repayment and debt servicing pressures and improving the stability of the financial system.

 

  1. Repo rate cut by 75 bps from 5.15% to 4.40% with immediate effect.

 

  1. The reverse repo rate to be 40 bps lower than repo rate from the earlier 25 bps.

 

  1. Marginal standing facility (MSF) rate to be 4.65% and bank rate to be 5.40%. It will bring about additional Rs. 1.37 lakh crs of liquidity.

 

  1. Targeted Long Term Repo Operations (TLTRO) of Rs. 1 lakh crores (3 year tenure).

The liquidity on account of TLTRO to be deployed by banks in investment grade

corporate bonds, commercial papers, and non-convertible debenture over their

investments in these as on 27 Mar’20. 50% of investments have to be in primary

market issuances and balance in secondary markets.

 

  1. CRR (cash reserve ratio) reduced by 100 bps to 3% of NDTL w.e. f from 28 March’20

for 1 year. It would release liquidity of about Rs. 1.37 lakh crore across the banking

system.

 

  1. Reduce the requirement of minimum daily CRR balance maintenance from 90%

to 80% for a period of 3 months w.e.f from reporting fortnight of March 28, 2020 till.

  1. Increase limit of borrowing under MSF from 2% to 3% of Statutory Liquidity Ratio

(SLR) till June 30,2020.

 

  1. 3 months moratorium in respect on all term loans of commercial banks, all India

financial institutions and NBFCs outstanding as on 1 March 2020 . These will include

retail loans like Home Loans and Personal loans.

 

  1. Deferment of interest on working capital facilities for a period of 3 months for all

facilities outstanding as on 20 March, 2020.

 

  1. Deferment in working capital facilities will not result in asset classification

downgrade.

 

  1. Easing of working capital financing – lending institutions can reduce margins

and/or reassess the working capital cycle for the borrowers. Further it will not result

in asset classification downgrade.

 

  1. Deferment of Implementation of Net Stable Funding Ratio (NSFR) by 6 months

from April 1, 2020 to October 1, 2020.

 

  1. Deferment of implementation of capital conservation buffer (CCB) under Basel

III norms for the last tranche of 0.625% of the CCB from March 31, 2020 to

September 30, 2020.

 

  1. Permitting banks to participate in the offshore Indian Rupee (INR) derivative

market – the Non-Deliverable Forward (NDF) market with effect from June 1, 2020.

 

  1. Liquidity to the tune of Rs. 3.74 lakh crores is to be made available in the system

 

Our View :

 

The measures announced today have matched and to an extent surpassedexpectations in the market. These would immensely help instil confidence and stability in the financial system. Moreover, the assurance from RBI indicates that it is ready to further relax the rates if the situation demands so in the future.The 75 basis point cut (One basis point is a hundredth of a percentage point) in repo rate is a measure aimed at lowering the cost of funds. However it shall have limited effect in the lockdown period. Yet, the interest on floating rate housing loans will come down, which shall help household in managing their cash flows.

 

The deferment of interest on working capital facilities and the moratorium announced on term loans would ease debt servicing pressures for the borrowers and lift confidence of investors who were fearing increase in stressed assets of Bank

to an extent. .Further this will address the short term delinquency concerns in retail,

MSME or corporate loans besides rendering significant relief for the NBFC and the MFI sector whose operations are likely to be impacted in this lockdown period.The flexibility provided to banks to redefine and recalculate drawing power based on margin adjustments will also help in providing additional working capital facilities in the current scenario.

 

The implementation of these announcements will now depend on the guidelines

issued by the RBI and methodologies decided by the respective boards of the Banks.

For more information mail us at info@solveraconsulting.com

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