In a sequel to covid-19 measures, RBI brings in nuance with a promise of more

MUMBAI: The lockdown to curb the spread of covid-19 has meant that policymakers are doubling up on their efforts to keep the economy safe. In that, the Reserve Bank of India (RBI) has rolled up its sleeves and on Friday announced a sequel to its earlier measures.

From banks to non-bank lenders and even state governments, the central bank had something for everyone.

The measure that carried some punch was the cut in reverse repo rate by 25 basis points to 3.75%, a bid to discourage banks from parking their funds with the RBI. As this column had pointed out on 16 April, banks have been parking record amount at the central bank’s reverse repo operations instead of lending to companies or investing in bonds.

After having pumped in liquidity that amounted to 3.1% of GDP, governor Shaktikanta Das today offered another potential ₹1 trillion liquidity with a promise of more. Banks will be able to borrow ₹50,000 crore from the RBI through targeted long-term repo (TLTRO) and lend to non-bank finance companies (NBFC). But this time, the RBI has taken care that no small lender falls through the cracks. About 50% of this money has to be invested in debt papers issued by mid-sized and small NBFCs. Market participants believe that this could ease the cost of borrowing of smaller NBFCs, giving them a lifeline.

Shares of NBFCs rose today but investors continue to fret over the fact that banks are not giving moratorium to their non-bank peers. Das did not provide any clarity on this today.

Banks got additional relief on asset classification as the central bank allowed those loans where moratorium is granted to be considered standard until end of May. This effectively means that the bad loan classification period changes to 180 days for all such accounts from 90 days.

In another measure, nodal agencies such as NABARD, SIDBI and National Housing Bank would be able to access refinance facility of ₹50,000 for helping regional rural banks, co-operative banks in giving their borrowers relief.

This too is targeted to help the small businesses to which these lenders cater to.

The RBI has also increased its support to the state governments by increasing their ways and means advances option by 60% of the outstanding as of 31 March. State governments have been having a harrowing time raising money from the markets. Of the scheduled ₹37,500 crore, states could borrow only 87% of this amount amid rising yields.

In its part two of measures to fight the covid-19 impact, the central bank has tried to make its past measures more inclusive. In that, today’s announcement is not a game changer.

But to be fair, the biggest message from Das is that more is on the anvil.