The Reserve Bank of India (RBI) on April 17th, 2020 announced a host of measures, including injecting Rs 50,000 crore via targeted long-term repo operations, so that banks provide more liquidity.
The RBI has decided to reduce the interest rate on fixed-rate reverse repo under the Liquidity Adjustment Facility (LAF) by 25 basis points from 4.00 per cent to 3.75 per cent with immediate effect.
The policy repo rate under the LAF remains unchanged at 4.40 per cent and the interest rate on the marginal standing facility (MSF) under the LAF and the Bank Rate remain unchanged at 4.65 per cent. All other terms and conditions under the LAF will remain unchanged.
“We will cure and endure, India is projected to turn around and grow at 7.4% in 2021-22. The measures have been taken to maintain adequate liquidity in the system and its constituents in the face of COVID-19 related dislocations, facilitate and incentivise bank credit flows, ease financial stress, and enable the normal functioning of markets,” RBI Governor Shaktikanta Das said.
The Governor said that the central bank will use all its instruments to address the daunting challenges posed by the epidemic. He said that the overarching objective is to help ensure that finance keeps flowing to all stakeholders, especially those that are disadvantaged and vulnerable.
“A second set of targeted long-term repo operations (TLTRO 2.0) for an initial aggregate amount of Rs 50,000 crore will be conducted. This is being done to facilitate funds flow to small and mid-sized corporates, including Non-bank Financial Institutions (NBFCs) and MFIs, who have been more severely impacted by the disruptions due to COVID-19,” Das added.
The funds availed by banks under TLTRO 2.0 should be invested in investment-grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 per cent of the total amount availed going to small and mid-sized NBFCs and micro finance institutions (MFIs).
Ways and Means Advances (WMAs) Limit of states and union territories has been increased by 60 per cent over and above the limit as on March 31st, 2020, in order to provide greater comfort to states for undertaking COVID-19 containment and mitigation efforts, and also to help them plan their market borrowing programmes better. The increased limit will be available until September 30th, 2020.
Special refinance facilities for a total amount of Rs 50,000 crore will be provided to National Bank for Agriculture and Rural Development (NABARD), the Small Industries Development Bank of India (SIDBI) and the National Housing Bank (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 microfinance 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),” he added.
To improve the liquidity position for individual institutions, Liquidity Coverage Ratio requirement for scheduled commercial banks has been brought down from 100 per cent to 80 per cent with immediate effect.
“This will be gradually restored in two phases – 90 per cent by October 1st, 2020, and 100 per cent by April 1st, 2021,” Das added.
Photo credit: @RBI