Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced much-needed relief for small and medium-sized financial organisations including NBFCs and MFIs, which have been struggling to operate in the wake of the Covid-19 pandemic.
The announcement comes after reports that the government was planning to release another stimulus package to support such smaller businesses, which often borrow from NBFCs and MFIs.
Apart from announcing fresh TLTRO 2.0 operations of Rs 50,000 crore, Shaktikanta Das mentioned several other measures to maintain adequate liquidity in the system, facilitate smooth bank credit flow and ease financial strain amid the deadly virus outbreak.
Here are 10 points to summarise RBI’s fresh measures to ease economic pressure:
1. RBI Governor Shaktikanta Das announced that it will conduct a second round of targeted long term repo operations (TLTRO) or TLTRO 2.0 for an initial amount of Rs 50,000 crore. During the conference, Das explained that the move will help in refinancing NBFCs and MFIs to maintain healthy cash flow to the small and medium enterprises (SMEs).
2. During his address, Shaktikanta Das said, “It has been decided to provide special refinance facilities for an amount of Rs 50,000 crores to National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), and National Housing Bank (NHB) to enable them to meet sectoral credit needs,” he said. The move will help refinance small and medium finance institutions lend money smoothly to businesses.
3. The second round of TLTRO operations were primarily conducted to help small and medium-sized financial organisations which mostly cater to MSMEs. The earlier TLTRO scheme mostly helped PSUs and large corporations, but the fresh round of operations will benefit smaller finance organisations to help them with cash flow to businesses.
4. Shaktikanta Das said indicated that the RBI is open to further increase the amount to help refinance NBFCs and other small-scale financial institutions if the need arises. This has been done to ensure there is adequate bank credit flow for small and medium-sized companies. It may be noted that RBI governor said at least 50 per cent of the amount availed by the aforementioned banks “must go” to small-sized NBFCs and MFIs.
5. This is the second TLTRO operations to be conducted by RBI to ease liquidity crunch in the wake of the Covid-19 pandemic. The fresh move is expected to help maintain adequate liquidity in the banking system. After making the announcement, Das also lauded banks and financial institutions in the country for rising up to the occasion.
6. Shaktikanta Das said RBI undertook three long-term repo operations to help ease the liquidity situation. Das said a TLTRO operation of Rs 25,000 crore will be conducted today itself. He said financial conditions have eased due to these auctions and added that it has also helped boost activities in the corporate bond market.
7. The announcement by RBI today focuses on four key areas as it looks to ease pressure on banks and businesses in the country. Das said RBI is working to maintain adequate liquidity in the system, facilitating and incentivising healthy cash flow from banks, easing the overall financial stress and enabling formal working of markets.
8. RBI announced many other measures to ease pressure on the economy at a time when Covid-19 pandemic has significantly dented the economy. RBI noted that the 90-day NPA norm will now not apply to the moratorium granted on existing loans by banks. RBI said the Liquidity Coverage Ratio (LCR) requirement for scheduled commercial banks (SCB) will be brought down from 100 per cent to 80 per cent with immediate effect. This will help banks maintain sufficient high-quality liquid assets in the wake of the economic crisis. “Loans given by NBFCs to real estate companies to get similar benefit as given by scheduled commercial banks,” he said.
9. RBI Governor Shaktikanta Das said it has been decided to reduce the fixed reverse repo rate under liquidity adjustment facility (LAF) by 25 basis points from 4 per cent to 3.75 per cent, with immediate effect. This will help maintain more liquidity in the banking system. RBI, however, kept the repo rate unchanged, but hinted that it could be reduced as inflation is likely to fall below its target in a couple of months. Das also said that banks do not have to make any further dividend payout in view of the financial difficulties due to Covid-19.
10. Finally, the RBI governor thanked bankers and other frontline workers who have been tirelessly battling lockdown odds to help people. He also assured people that RBI has been “proactively” monitoring the situation. He exuded hope citing International Monetary Fund’s projection that India is expected to post a sharp turnaround and grow at 7.4 per cent in 2020-21. Das further assured that India has adequate reserves to fight the economic crisis triggered by the deadly virus.
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