Sunday, October 2, 2022

RBI announce Rate Cut, 3 Month Moratorium on Loans

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Reserve Bank of India Governor Shaktikanta Das today announced that banks and NBFCs can allow a 3-month moratorium on loans along with other measures to help the economy tide over the coronavirus pandemic distress.

At the conference, he said , “Finance is the lifeline of the economy, keeping it flowing is the paramount objective of the Reserve Bank of India at this point of time.”

In view of the COVID19 pandemic the Monetary Policy Committee met in advance and made certain decision regarding the economy of the country.

He said that, “The Reserve Bank has been in action on a daily basis with efforts to alleviate financial stress, build confidence and keep the financial system sound and functioning”

The MPC voted for sizeable reduction in the Repo Rate and for maintaining the accommodative stance of monetary policy as long as necessary to revive growth and to mitigate the impact of COVID19 while ensuring that inflation remains within the target

MPC voted to reduce the Repo Rate by 0.75 percent bringing down the Repo Rate from 5.15 percent to 4.4 percent, similarly the Reverse Repo Rate was also reduced by 0.90 percent bringing it down to 4 percent thus creating an asymmetrical corridor. The Governor of RBI said, “The purpose of this measure is to make it relatively unattractive to banks to passively deposit funds with the Reserve Bank and instead to use this fund for on lending to the productive sectors of the economy”

Expressing himself the Governor said, “There is a rising probability that large parts of the global economy will slip into recession”

He went on to list the risk factors stating, if COVID 19 is prolonged and the supply chains disruption gets accentuated the global slow down could deepen with adverse implications for India. The slump in international crude prices could however provide some relief in the terms of trade gains, downside risks to growth arise from spread of COVID 19 and prolonged lockdown.

Das also stated that, food prices may soften even further under the beneficial effects of the record food grain and horticulture production at least till the onset of the usual summer uptick. The collapse of crude prices could work towards easing of fuel and coal inflation pressures depending on the level of pass through to the retail prices. As a consequence of COVID19 aggregate demand may weaken and ease core inflation further, heightened volatility in financial market could also have impact on inflation.

Das also outlined the following measures to be taken to expand liquidity:

  • The Reserve Bank will conduct auctions of Targeted Long Term Repos upto three years tenor of appropriate sizes for a total amount upto Rs 1 lakh crore at a floating rate linked to policy repo rate.
  • Liquidity availed under the scheme by banks has to be deployed in investment grade corporate bonds, commercial papers and non-convertible debentures, over and above their outstanding level of their investment in these bonds as on 25th March, 2020.
  • Eligible instruments comprise both primary market issuance as well as secondary market purchases including from mutual funds and non banking finance companies.
  • Investments made by banks under this facility will be classified as held-to-maturity even in excess of 25 percent of total investment permitted to be included in the HTM portfolio.
  • Exposure under this facility will not be returned under the large exposure framework.
  • First TLTRO auction of Rs 25,000 cr will be conducted later today.
  • RBI decided to reduce the CRR of all banks by 100 basis points to 3% beginning from 28th March for a period of one year.
  • Marginal Standing Facility raised from 2 percent of Statutory Liquidity Ratio to 3 percent with immediate effect applicable upto 30th June 2020.

Das also announced that the Monetary Policy Rate Corridor will also be increased from 50 basis points to 65 basis points

He also announced the following measures on regulations:

  • All commercial banks, financial institutions and NBFCs are permitted to allow three month moratorium on payment of installment of all term loans outstanding as on 1st March, 2020.
  • Lending institutions are permitted to allow deferment of three months on payment of interest in respect of all working capital facilities sanctioned, outstanding as on 1st March, 2020. Accumulated interest for the period will be paid after the expiry of the deferment period
  • Implementation of Net Stable Funding Ratio is deferred by six months to 1st October 2020
  • Implementation of last tranche of Capital Conservation Buffer is also deferred to 30th September 2020
  • Banks in India are being allowed to participate in Non Deliverable Forward Market with effect from 1st June 2020.

In conclusion Das said, “RBI will continue to remain vigilant and take whatever steps necessary to mitigate the economic impact of COVID-19 and preserve financial stability in the country.”

-India Legal Bureau

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