The RBI on Friday further eased bad-loan rules, froze dividend payment by lenders and pushed banks to lend more by cutting the reverse repo rate by 25 basis points, as it unveiled a second set of measures to support the economy hit hard by a coronavirus-led slowdown.
In his second televised address since the nationwide lockdown began from March 25, the Reserve Bank of India (RBI) Governor Shaktikanta Das pledged to boost liquidity and expand bank credit.
In a measure that effectively meant that bad loans or non-performing asset (NPA) classification will now happen after 180 days instead of the current policy of 90 days of payment default, the RBI announced an asset status freeze on loans that have been granted moratorium or deferment on interest/principal payment.
This would cover the borrowers of both banks and NBFCs.
This means that the moratorium period will not lead to a spurt in NPAs in the system and will allow the borrowers across retail, small and medium-sized enterprises (SMEs) and corporates availing the moratorium to access additional funding from banks or non-banking financial companies (NBFCs).
Das, however, said lenders will have to make an additional provision of 10 per cent for those exposures under moratorium.
RBI cut reverse repurchase rate, a tool to control the money supply, to 3.75 per cent with immediate effect to encourage banks to deploy surplus funds within the system towards lending.
The reverse repo rate cut will discourage banks from parking cash with the RBI and encourage them to lend to the economy.
It kept its benchmark repo rate, which was reduced late last month, unchanged at 4.40 per cent.
The central bank also allowed states to borrow 60 per cent more via ways and means advance facility available and extended the increased limit until September 30.
To preserve capital, RBI asked banks not to pay any further dividends for the fiscal year ended March 31.
“It is imperative that banks conserve capital to retain their support for the economy and absorb losses in an environment of heightened uncertainty,” Das said.
RBI will inject Rs 50,000 crore in a new round of targeted long-term repo operations and asked banks to use the funds availed through this facility to benefit NBFCs and micro-finance institutions among others.
“Since March 27, 2020, when I spoke to you last, the macroeconomic and financial landscape has deteriorated, precipitously in some areas; but light still shines through bravely in some others,” Das said.
“India is among the handful of countries that is projected to cling on tenuously to positive growth (at 1.9 per cent). In fact, this is the highest growth rate among the G-20 economies,” he said adding the World Trade Organisation sees global merchandise trade contracting by as much as 13-32 per cent in 2020.
RBI also announced a Rs 50,000 crore special refinance to pan-India financiers like Sidbi, Nabard and NHB that provide affordable funds to the rural sector and agriculture.
Of this, Rs 10,000 crore will be for National Housing Bank (NHB) which will ease some of the liquidity challenges for housing financing companies to get bank financing.
In a move that will bring much-needed relief to cash-starved developers, the RBI has further extended the date of commencement of commercial operations (DCCO) of project loans for commercial real estate projects which are delayed for reasons beyond the control of promoters.
Prime Minister Narendra Modi welcomed RBI announcements saying it will greatly enhance liquidity and improve credit supply.
“These steps would help our small businesses, MSMEs, farmers and the poor. It will also help all states by increasing WMA limits,” he said on Twitter.
Pumps Rs 1.2 lakh crore fresh currency into system:
The Reserve Bank has pumped Rs 1.2 lakh crore of fresh currency into the system in last 45 days since the COVID-19 outbreak in the country, Governor Shaktikanta Das said.
Automated teller machines and business correspondents, who take banking services to far flung areas, are also working at high capacity levels to ensure financial services reach everybody, he said.
The comments on currency come amid media reports of a Rs 86,000 crore jump in currency circulation in March and also a greater tendency among people to withdraw to hoard cash amid the lockdown.
“Regional offices of the RBI have supplied fresh currency of Rs 1.2 lakh crore from March 1 till April 14 to currency chests across the country to meet increased demand for currency in the wake of the COVID-19 pandemic,” Das said in his video message over social media.
He lauded banks for rising to the occasion and ensuring that ATMs are refilled regularly despite the logistical challenges during the lockdown.
Additionally, there has not been any downtime in internet or mobile banking as well, he said.
The governor said banks have been required to put in place business continuity plans to operate from their disaster recovery (DR) sites or identify alternate locations for critical operations so that there is no disruption in customer services. ( PTI )
