The Reserve Bank of India (RBI) on Friday announced a cut of 25 basis points (bps) in reverse repo rate (short-term borrowing) to 3.75% from 4%. While asking banks not to make any further dividend pay-out, RBI governor Shaktikanta Das says non-performing asset (NPA) classification will exclude the moratorium period as provided by the lenders.
In a video address, Mr Das says, "Reverse repo rate is being reduced to 3.75% from 4% with immediate effect, in order to encourage banks to deploy surplus funds in investments and loans in productive sectors of the economy. Repo rate remains unchanged."
The central bank will conduct today a targeted long-term repo operation (TLTRO) auction of Rs25,000 crore to be conducted. Mr Das says, "We have decided to undertake TLTRO 2.0 with Rs50,000 crore to begin with and this may be stepped up as necessary. Emphasis is on ensuring adequate funds flow to NBFCs and MFIs. We will issue notification on this today."
Special refinancing facilities of Rs50,000 crore to be given to all India financial institutions such as NABARD, SIDBI and National Housing Bank, to enable them to meet sectoral credit needs. Accordingly, NABARD would get Rs25,000 crore while SIDBI and NHB would receive Rs15,000 crore and Rs10,000 crore, respectively, the RBI governor says.
On NPA classification, the RBI governor says, "For accounts for which lending institutions decide to grant moratorium or deferment and which were standard as on 1 Mar 2020, the 90-day NPA norm will exclude moratorium period and there will be an asset classification standstill for such accounts from 1st March to 31 May 2020."
According to Mr Das, early developments suggest that inflation is on a declining trajectory, having fallen by 170 basis points from January 2020 peak. "In the period ahead, inflation could recede further. This would make policy space available and it needs to be used effectively and in time," he says.
He also asked scheduled commercial banks and cooperative banks not to make dividend pay-out until further instructions. He says, "To conserve capital to retain banks' capacity to support the economy and absorb losses, scheduled commercial banks and cooperative banks shall not make any further dividend pay-outs from profits pertaining to FY19-20; decision to be reviewed at end of third quarter."
"Recognising challenges to resolution of stressed assets, period of resolution plan currently required to be completed by banks within 210 days from date of default shall be extended by 90 days," Mr Das says.
The governor says, "RBI will monitor evolving situation continuously and use all its instruments to address daunting challenges posed by COVID19 pandemic. Today's announcements are aimed at preserving financial stability. Eventually, we shall cure and we shall endure."
Last month, the central bank had reduced repo rate (short-term lending) by 75bps to 4.4% in its last monetary policy review for 2019-2020. The reverse repo rate was also reduced by 90bps to 4%. RBI had decided to reduce the cash reserve ratio (CRR) of all banks by 100bps to 3% of net demand and time liabilities (NDTL) with effect from the fortnight beginning 28 March 2020 for a period of one year, the central bank had said.
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