In less than a month, Reserve Bank of India (RBI) Governor, Shaktikanta Das today, 17 April 2020, announced the second round of measures to address the COVID-19 crisis by launching a series of liquidity easing steps specifically targeting the non-banking finance companies (NBFCs) and MFIs that have been suffering on account of tight cash conditions. While the RBI Governor kept the repo rate unchanged, he slashed reverse repo rate by 25 basis points to 3.75%, in emergency measures to provide more relief to an economy fighting the fallout of Coronavirus. The cut in the reverse repo is intended to disincentivize banks from parking funds with the RBI and to incentivize them to lend to the real economy instead.
Addressing the press conference (read the detailed statement here) against the backdrop of the COVID-19 pandemic and based on the RBI’s continued assessment of the macroeconomic situation and financial market conditions, Das proposed to take further measures to (i) maintain adequate liquidity in the system and its constituents in the face of COVID-19 related dislocations; (ii) facilitate and incentivise bank credit flows; (iii) ease financial stress; and (iv) enable the normal functioning of markets.
Accordingly the RBI Governor announced Rs 50,000 crore special finance facility to be provided to NABARD (Rs 25,000 crore), SIDBI (Rs 15,000 crore), and NHB (Rs 10,000 crore). He said that the surplus capital will help to refinance the commercial banks and housing finance banks to infuse liquidity into the market.
Relief to Real Estate
In a relief to the real estate industry, the RBI Governor announce that loans given by NBFCs to real estate companies will be given similar benefits as given by scheduled commercial banks. To benefit NBFCs and micro-financial institutions, the RBI said it will conduct targeted long-term repo operations (TLTRO) 2.0 worth Rs 50,000 crore, which can be further increased. These measures are significant for micro-lenders since these companies have been gasping for money. The RBI has also asked all banks to not make any dividend payments to shareholders due to the ongoing financial challenges. RBI has also brought down the LCR (Liquidity Coverage Ratio) requirement of banks to 80% from 100%, giving more liquidity to banks.
Further, Das announced that the date for commencement for commercial operations (DCCO) in respect of loans to commercial real estate projects delayed for reasons beyond the control of promoters can be extended by an additional one year, over and above the one-year extension permitted in normal course, without treating the same as restructuring. “It has now been decided to extend a similar treatment to loans given by NBFCs to commercial real estate. This will provide relief to NBFCs as well as the real estate sector,” he said.
"Today’s announcement will give an initial fillip to the real estate sector. The Central Bank’s focus to provide credit flow to NBFCs is a key step. This will provide a boost to various real estate activities," said Ramesh Nair, CEO & Country Head, JLL India. Nair further shared that as per the latest data by RBI, NBFCs outstanding credit to the commercial real estate stood at Rs 1,29,359 crore as of end September 2019. "The relaxation of NPA classification norms and extension of one year for commencement of projects to real estate developers by NBFCs will provide the much needed relief to the sector," he said.
Round-up of announcements made by RBI Governor on 17 April 2020
1. Current Economic Situation
- India is among the handful of countries that is projected to cling on tenuously to positive growth (at 1.9 %). In fact, this is the highest growth rate among the G 20 economies.
- India is expected to post a sharp turnaround and resume its pre-COVID pre-slowdown trajectory by growing at 7.4% in 2021-22.
2. Liquidity Adjustment Facility: Fixed Rate Reverse Repo Rate
- It has been decided to reduce the fixed rate reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 4.0% to 3.75% with immediate effect.
- The policy repo rate remains unchanged at 4.40%, and the marginal standing facility rate and the Bank Rate remain unchanged at 4.65%.
3. Refinancing Facilities for All India Financial Institutions (AIFIs)
- It has been decided to provide special refinance facilities for a total amount of Rs 50,000 crore to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs.
- This will comprise Rs 25,000 crore to NABARD for refinancing regional rural banks (RRBs), cooperative banks and micro finance institutions (MFIs); Rs 15,000 crore to SIDBI for on-lending/refinancing; and Rs 10,000 crore to NHB for supporting housing finance companies (HFCs).
4. NBFC Loans to Commercial Real Estate Projects
- The date for commencement for commercial operations (DCCO) in respect of loans to commercial real estate projects delayed for reasons beyond the control of promoters can be extended by an additional one year, over and above the one-year extension permitted in normal course, without treating the same as restructuring.
- It has now been decided to extend a similar treatment to loans given by NBFCs to commercial real estate. This will provide relief to NBFCs as well as the real estate sector.
5. Asset Classification
It has been decided that in respect of all accounts for which lending institutions decide to grant moratorium or deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall exclude the moratorium period.
6. Distribution of Dividend
In view of the COVID-19-related economic shock, scheduled commercial banks and cooperative banks shall not make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions. This restriction shall be reviewed on the basis of the financial position of banks for the quarter ending September 30, 2020.
7. Liquidity Coverage Ratio
In order to ease the liquidity position at the level of individual institutions, the LCR requirement for Scheduled Commercial Banks is being brought down from 100% to 80% with immediate effect. The requirement shall be gradually restored back in two phases – 90% by October 1, 2020 and 100% by April 1, 2021.
8. Ways and Means Advances for States
It has now been decided to increase the WMA limit of states by 60% over and above the level as on March 31, 2020 to provide greater comfort to the states for undertaking COVID-19 containment and mitigation efforts, and to plan their market borrowing programmes better. The increased limit will be available till September 30, 2020.