On 17-04-2020, the Reserve Bank of India (#RBI) issued certain measures to revive the struggling economy of India. The Governor of RBI, Shri. Shaktikanta Das, announced the following measures, through an online address, to overcome various challenges that have arisen due to the #Covid19 outbreak and the #Lockdown situation in the country:
1- Targeted long-term repo operations:
The RBI would provide long term #loan of Rs. 50,000/- Crores to banks, so that small and mid-size corporates, non-banking financial #companies (NBFCs), micro finance institutions (MFIs), etc, can avail funds from #banks.
2- Refinancing facilities for financial institutions:
In view of the prevailing financial crisis due to Covid19 outbreak, the RBI has recently reduced the rate at which it lends money to commercial banks, i.e., #RepoRate, to 4.4%, on 27-03-2020. This is to encourage commercial banks to borrow more money from RBI and re-finance it to third-party borrowers.
The RBI has decided to provide a Refinance Facility of Rs. 25,000/- Crores to the National Bank for Agriculture and Rural Development (NABARD) at prevailing Repo Rates. This would enable #NABARD to provide funds to regional rural banks (RRBs), cooperative banks and MFIs, at affordable credit rates and terms.
Further, the RBI would provide a Refinance Facility of Rs. 15,000/- Crores to the Small Industries Development Bank of India (SIDBI) at prevailing Repo Rates. This would enable SIDBI to provide funds to third party borrowers, at affordable credit rates and terms.
Additionally, the RBI would provide a Refinance Facility of Rs. 10,000/- Crores to the National Housing Bank (NHB) at prevailing Repo Rates. This would enable NHB to provide funds to housing finance companies (HFCs), at affordable credit rates and terms.
3- Reduction of Reverse Repo Rate
In view of the prevailing financial crisis due to Covid19 outbreak, the RBI has recently reduced the rate at which it borrows money from commercial banks, i.e., the Reverse Repo Rate, to 3.75%. This would encourage commercial banks to provide loans and make investments in productive sectors of the economy, rather than provide loans to the RBI.
4- Increasing the limit of #loans to States and UTs
The RBI has increased the limit of temporary loan facilities that State Governments and Union Territories (UTs) Governments can avail from RBI, i.e. Ways and Means Advances (WMAs), by 60%. This would encourage them to undertake measures to contain and prevent the spread of Covid19 Pandemic in their respective States and UTs.
5- Extension of review and resolution period
The RBI has directed lenders to review and resolve the borrowers’ non-performing account (NPA), within 30 days of default of repayment, which has now been extended by 90 days, in view of the Coronavirus crisis.
6- Restriction on distribution of dividend
The RBI has directed scheduled commercial banks and cooperative banks to refrain from distributing dividends out of profits earned in 2019-20, until further orders. This would enable banks to preserve capital and support the economy.
7- Lowering of Liquidity Coverage Ratio requirement
Liquidity ratios measure a bank’s ability to meet the short-term financial obligations and liquidity disruptions in the market. But due to the prevailing cash crunch in the society, the RBI has reduced the Liquidity Coverage Ratio requirement for scheduled commercial banks from 100% to 80%.
8- Loans to commercial real estate projects
The RBI has allowed NBFCs to provide loans to commercial real estate projects, where the commencement of operations have been delayed due to reasons such as outbreak of Covid19, which are beyond the control of the promoters of such projects.
Thus, the RBI has issued the aforesaid measures to maintain adequate liquidity in the system, ease the financial stress and facilitate the normal functioning of the markets, during these challenging times. Further, Prime Minister, Shri. Narenda Modi, said that these RBI measures would help to improve credit supply in the economy and would also help small businesses, micro, small and medium enterprises (MSMEs), farmers and the needy, to deal with the outcome of the Covid19 crisis.
Senior Legal Associate
The Indian Lawyer