RBI injects liquidity to prop up economy

Tribune News Service

New Delhi, April 17

The Reserve Bank of India today announced liquidity infusion of Rs 50,000 crore to refinance institutions and said it planned to raise another Rs 50,000 crore to meet the long-term credit needs of banks.

Edit: RBI’s stimulus package

The main goal of the two initiatives is to resuscitate small, medium and micro institutions such as small non-banking financial companies, housing finance companies, small industries and the rural sector.

The BSE Sensex soared over 986 points on Friday after RBI’s second batch of stimulus measures lifted sentiment amid the Covid-19 gloom. After starting over 1,116 points higher, the 30-share BSE Sensex pared some early gains to end 986.11 points or 3.22 per cent higher at 31,588.72. Similarly, the NSE Nifty zoomed 273.95 points.

The sum of Rs 50,000 crore to three state-owned financial institutions will meet the long-term funding requirements of agriculture, rural sector and small industries, besides housing finance companies and medium NBFCs and micro finance institutions (MFIs). Similarly, the RBI has asked banks to give half of the Rs 50,000 crore it will raise through targeted long-term repo operations (TLTRO) to the more severely impacted small and mid-sized corporates and MFIs instead of taking the safe option of purchasing bonds of PSUs and large corporates. Of the total amount of Rs 50,000 crore, NABARD will get Rs 25,000 crore, SIDBI Rs 15,000 crore and NHB Rs 10,000 crore.

Turnaround expected

India is expected to post a sharp turnaround and resume its pre-Covid pre-slowdown trajectory by growing at 7.4 per cent in 2021-22. — Shaktikanta Das, RBI Chief

The Rs 50,000- crore TLTRO will be in addition to Rs 75,000 crore raised through the first post-Covid  TLTRO in three tranches from March 27. The RBI is immediately raising Rs 25,000 crore through a TLTRO, which means it will soon have half the amount it promised today to banks.

As banks are flush with money and are parking an average of Rs 4.36 lakh crore with the RBI in a fortnight, it has been decided to cut the interest rate they get (reverse repo) by 25 basis points to encourage them to lend for productive activities.

The RBI also doubled the ways and means advances (WMA) limit of 30 per cent for states announced on April 1 to 60 per cent to provide greater comfort to states for undertaking Covid containment and mitigation efforts and to plan their market borrowing programmes better instead of bunching them in the early months of the year. The increased limit will be available till September 30.

Making the announcements, RBI Governor Shaktikanta Das said there would be an asset classification standstill for all accounts granted moratorium from March 1 to May 31. In other words, the rule under which a company would be classified as NPA if it defaulted on debt repayment for 90 days has been suspended for three months. But to cater to the risk of build-up in banks’ balance sheets, banks have been asked to maintain a higher provision of 10 per cent on accounts given moratorium for two quarters. As another step in this direction, all banks have been barred from making dividend payouts for fiscal 2019-20 till further instructions. The RBI chief relied on IMF statistics to claim that India would post the best growth among G-20 countries and that it would post a sharp turnaround and grow at 7.4 per cent in 2021-22.

Measures to push banks to lend more

• Bad loans or non-performing asset (NPA) classification will now happen after 180 days instead of 90 days of payment default
• Reverse repo rate cut will discourage banks from parking cash with RBI and encourage them to lend to customers
• States allowed to borrow 60 per cent more via ways and means advance facility, extend increased limit until Sept 30
• RBI to inject Rs50,000 cr in a new round of targeted long-term repo operations
• Banks told to use funds availed through this facility to benefit NBFCs and micro-finance institutions
• Rs50,000 cr special refinance to financiers like SIDBI, NABARD and NHB that provide funds to rural sector and agriculture
• Banks not to pay dividend for 2019-2020

Fresh govt exemptions for rural areas

• Construction activities allowed in rural areas
• These include water supply and sanitation works, laying of power transmission and telecom lines
• Collection, harvesting and processing of minor forest produce by Scheduled Tribes permitted
• Bamboo, coconut, arecanut cocoa, spices plantation and their harvesting, processing, packaging, sale and marketing allowed
• NBFCs, including housing finance firms, and cooperative societies exempted from lockdown

Congress: Far too little

New Delhi: The Congress termed the measures as “far too little” and said it was disappointed while urging PM Modi to announce sector-specific packages for the industry. Senior party spokesperson Anand Sharma said the government should take more measures to mitigate the problems of the poor and the vulnerable. PTI