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Business News/ News / India/  RBI cuts reverse repo, launches TLTRO 2.0, stops dividends by banks

RBI cuts reverse repo, launches TLTRO 2.0, stops dividends by banks

The regulator has cut reverse repo by 25 bps, launched TLTRO 2.0, stopped dividends by banks
  • The central bank also asked lenders to give a 90-day relief to companies while classifying an account as NPA
  • RBI Governor Shaktikanta Das ended his speech with these words: 'Although social distancing separates us, we stand united and resolute. Eventually, we shall cure; and we shall endure'.Premium
    RBI Governor Shaktikanta Das ended his speech with these words: 'Although social distancing separates us, we stand united and resolute. Eventually, we shall cure; and we shall endure'.

    MUMBAI: The Reserve Bank of India Governor Shaktikanta Das on Friday fired another round of bazooka by delivering a de-facto policy rate cut by lowering reverse repo rate, opening a special line of funds to help support non-banking finance companies and microfinance companies and easing asset classification norms on loan accounts considered for moratorium to support the banking system from the impact of covid-19 pandemic.

    The RBI cut reverse repo rate by 25 basis points to 3.75% to discourage banks from parking excess liquidity under the liquidity adjustment facility (LAF) window and instead lend more. The central bank had last cut reverse repo rate by 90 basis point to 4% on 27 March. The move comes as banks have been parking excess liquidity with the RBI, the the amount absorbed under 15 April reverse repo operations being 6.9 lakh crore.


    For NBFCs and micro finance institutions, the RBI proposed to make available liquidity worth 50,000 crore under the Targeted Long term repo operation (TLTRO) 2.0. This will allow banks to access 3-year funding from RBI to invest in investment grade corporate papers of small and mid-sized NBFCs and MFIs. The central bank assured to make available further liquidity under this facility depending on the pattern of utilisation and requirement.

    Banks will have to make these investments within a month of raising these funds under TLTRO. These funds will not be accounted for while calculating the large corporate exposure.

    The move to announce a special liquidity facility under the TLTRO window for NBFCs and MFIs comes as these companies failed to get funding under the earlier TLTRO scheme. While RBI had released as much as 75,000 crore out of the promised 1 lakh crore, banks had utilised these funds to invest in high rate corporate papers. This left out the small and mid-sized NBFCs and MFIs who were facing liquidity challenges owing to businesses coming to a halt to the lockdown.


    RBI also announced an easing of asset classification norms for all accounts where moratorium or deferment has been applied. This essentially means that there will be an asset classification standstill on all loans covered under the moratorium from 1 March to 31 May 2020. However, banks will have to maintain additional 10% provisioning on these standstill accounts over two quarters of March 2020 and June 2020, thereby putting pressure on their balance sheets.

    RBI also allowed extension of resolution period for all large stressed accounts identified under the 7 June circular by 90 days. Currently, banks are required to hold an additional provision of 20% if a resolution plan has not been implemented within 210 days from the date of such default.

    The central bank also lowered the Liquidity Coverage Ratio (LCR) requirement for banks to 80% from 100% with immediate effect. This will be gradually restored in two phases – 90% by 1 October, 2020 and 100% by 1 April, 2021. LCR is the proportion of high liquid assets that banks have to keep to meet their short-term liabilities.

    RBI also waived any further dividend payouts by banks and cooperative banks from profits pertaining to the fiscal year 2019-2020. This will be reviewed on the basis of financial position of banks after the end of the September quarter.


    RBI also said it will provide a special refinance facility for an amount of 50,000 crore to all financial institutions like National Bank for Agriculture and Rural Development (Nabard), Small Industries Development Bank of India (Sidbi) and the National Housing Bank (NHB). This will comprise 25,000 crore to Nabard for refinancing regional rural banks (RRBs), cooperative banks and micro finance institutions (MFIs); 15,000 crore to SIDBI for on-lending or refinancing; and 10,000 crore to NHB for supporting housing finance companies (HFCs). The funds will be available at the RBI’s policy repo rate at the time of availing the loans.


    RBI has also decided to increase the Ways and Means Advances (WMA) limit for states by 60% over and above the level as on March 31, 2020 to provide greater comfort to the states in their fight against covid-19 and to plan their market borrowing programmes better. The increased limit will be available till September 30, 2020, Das said.

    WMA is a temporary liquidity arrangement with the central bank, which enables the Centre and the states to borrow money up to 90 days from the RBI to tide over their liquidity mismatch.

    The central bank had earlier increased the WMA limit by 30% to help states manage their cash flow mismatches. It also increased WMA for the Centre to 1.2 trillion for the first half, up from 75,000 crore in the first half last year, and 35,000 crore for the second half of 2019-20 originally announced.

    Separately, the central government has allowed states to borrow as much as 3.2 lakh crore in the first nine months of the current financial year. States will be able to raise 50% of the increased net borrowing limit during April-December. State governments have already borrowed as much as 44,778 crore so far in the current financial year, compared to 29,572 crore worth of state development loans in the whole of April last year.


    The central bank also allowed for extension of date for commencement for commercial operations in respect of loans given by banks and NBFCs to commercial real estate projects delayed for reasons beyond the control of promoters by one year. This extension will not be treated as restructuring, Das clarified.

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    Gopika Gopakumar
    Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
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    Published: 17 Apr 2020, 01:37 PM IST
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