The Reserve Bank of India came out with certain relief measures on the 17th of April 2020. These are the second set of measures announced by the Reserve Bank of India. The key takeaway from RBIs address to the public is that RBI reduced the reserve repo rate from 4.0% to 3.75%. Here are the key highlights from RBIs press conference:
RBI governor said that the RBI is doing everything to fight the epidemiological challenge that the world is facing to ensure financial system, RBI staff is working, being staying away from family. RBI governor started his address by thanking RBI staff that has been working away to keep the financial system strong.3
1. RBI to start TLTRO 2.0
TLTRO(Targeted Long Term Repo rate operation) 2.0 will be started by the RBI, beginning with Rs 50,000 in tranches, to small and mid-size NBFCs and MFIs. RBI has decided for an aggregate amount of Rs 50,000 crore to begin in TLTRO, in tranches of appropriate sizes. - RBI. Funds will be made available to small and mid-size firms and banks will have to disburse funds in a month's time. The amount of Rs 50,000 core can be increased, said Das. Under the new TLTRO 2.0, lenders have to allocate 50% of the funds to mid and small size NBFCs, said Das.
2. RBI's capital infusion in NABARD, SIDBI, and NHB
RBI has announced Rs 25,000 crore to NABARD; Rs 15000 crore to SIDBI for refinancing commercial banks, NBFCs, etc; and Rs 10,000 crore to NHB.
3. RBI cuts reverse repo rate
Reverse repo rate cut by 25 basis points from 4 percent to 3.75 percent. Das announced that Rs 6.9 lakh crore absorbed by RBI on April 15 by means of reverse repo rate. The cut in reverse repo rate is to encourage banks to lend more, said RBI Governor Shaktikanta Das.
4. NPA classification will exclude the 3-month moratorium period
Non-performing classification will exclude moratorium period said RBI Governor.
5. Banks must maintain 10% more provision
To maintain the bank's health, RBI said that the lenders will have to maintain 10% higher provisions on accounts, RBI governor Shaktikanta Das in his presser on Friday.
6. NBFCs allowed to relax NPA classification for borrowers under moratorium
- Banks must invest 50 percent of funds under TLTRO-2 to small, mid-sized NBFCs
- Banks will be required to maintain additional provisioning of 10% on standstill accounts
- 90-day NPA norm not to apply on moratorium granted on existing loans by banks
- Banks and cooperative banks shall not make any dividend payouts until further notice
- Banks must provide more for accounts availing moratorium
Note: Scheduled commercial banks and other financial institutions are to make additional 20 percent provision. Due to the challenges of resolutions of accounts, period of resolution will be increased by (further) 90 days. Extension of resolution timeline for large accounts under default, additional provisioning of 20 percent is required for not implementing resolution in 180 days. Relaxing additional 20 percent will be provisioned under June 7 circular. Banks need to conserve capital and absorb losses. Banks will not make dividend payout from FY20 until further notice.
Source: News/Press conference
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