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Friday’s measures included a Rs 50 billion refinancing service to banks for loans to NBFCs through a new long-term repo loan operation (TLTRO 2), Rs 50 billion financing support for institutions refinancing and lower rates of bank funds stationed with RBI. Targeted liquidity support is intended to prevent a crisis in the NBFC sector where lenders had granted a moratorium on their borrowers but had not been given any relief on their financial obligations. Financial companies, in turn, have been allowed to relax the rules for commercial real estate projects to facilitate their completion.
RBI Governor Shaktikanta Das noted that the previous round of liquidity provided through special repos was used by banks to finance public sector entities and large corporations. In addition to Rs 50 billion to finance companies, RBI set aside another Rs 50 billion for agricultural loans, SME loans and home financing. This is routed through a special refinance facility of Rs 25 billion for NABARD, Rs 15 billion for SIDBI and Rs 10 billion for the National Housing Bank. He also asked banks to skip dividends for fiscal year 20 and use the money to repay bad loans.
Das acknowledged that banks were avoiding loans by parking close to Rs 6.9 lakh crore with the Reserve Bank of India under its reverse repos program, where banks can park surplus funds. To discourage banks from doing so, RBI has reduced the reverse repo rate by 25 basis points to 3.75% from 4%. Finance companies said the measures have yet to address the key problem of making banks lend to the top-rated borrowers, noting the large number parked with RBI as an example of banks’ risk aversion. While the RBI cannot compel banks to lend, the measures have created the basis for allowing lenders to start lending if the government presents an economic package that will facilitate loans through credit guarantees for small businesses.
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OSE President Rajnish Kumar said the central bank’s decision to allow a 90-day suspension to classify a loan as a delinquent asset will give banks the desired operational flexibility to help stressed accounts. According to Rashesh Shah, CEO of the Edelweiss group, financial companies have been using their reserves as they had to meet their obligations, even when they granted a moratorium on their borrowers. “With access to liquidity, NBFCs can now replenish their reserves,” he said. “Given the optimism around the phased-back economy and the support that extends through emergency Covid loans and other lines of credit, this will help all sectors, especially MSMEs and retail,” he said. Padmaja Chunduru, MD and CEO of Indian Bank.
In announcing the measures, Das said in India, the mission is to do whatever it takes to prevent the epidemiological curve from escalating further. The governor said that due to the epidemic and measures to contain it, the macroeconomic and financial outlook has deteriorated, “precipitously in some areas, but the light still shines boldly in others.” He said these were not the latest measures and that the central bank would take more steps as the situation evolved. Sounding a note of optimism, the governor said: “Although social distancing separates us, we are united and determined. Eventually, we will heal; and we will endure. ”
According to HDFC Vice President and CEO Keki Mistry, the measures announced by the RBI will ease some of the liquidity situation in the markets. He said that while management to banks asking them to skip the dividend would result in Rs 1 crore of the dividend not going in, the overall impact would be offset in a consolidated balance sheet.
