The Reserve Bank of India on Friday unexpectedly cut its key deposit rate for the second time in three weeks to deter banks from parking idle funds with it and to spur lending to help the economy cope with the impact of the coronavirus lockdown.
This week, Prime Minister Narendra Modi extended until May 3 a lockdown of the population of 1.3 billion as India's tally of infections exceeded 10,000, despite the three-week shutdown ordered from March 24.
The RBI had announced several other steps to tackle the impact on various industries from the lockdown and took further steps on Friday.
Targeted long-term repo operations (TLTRO 2.0)
The RBI will conduct auctions of targeted term repos of up to three years tenor for a total of up to 500 billion rupees ($6.54 billion) at the policy repo rate.
The funds availed must be deployed in investment grade bonds, commercial paper (CPs) and non-convertible debentures (NCDs) of Non-Banking Financial Companies (NBFCs) both small and large as also micro-finance institutions.
These investments will be classified as held-to-maturity even in excess of the 25% of total investments that is permitted to be categorised under HTM and these exposures won't be reckoned under the large exposure framework.
The funds availed need to be deployed within 30 working days from the date of the auction, RBI said.
Refinancing facility for all India financial institutions
The RBI will provide up to 500 billion rupees of refinancing at the existing policy repo rate to various pan-India financial institutions to help them meet sectoral credit needs.
For refinancing regional rural banks (RRBs), cooperative banks and micro finance institutions (MFIs), 250 billion rupees will be provided to the National Bank for Agriculture and Rural Development.
For on-lending/refinancing, 150 billion rupees will be provided to the Small Industries Development Bank of India and 100 billion rupees to the National Housing Bank for supporting housing finance companies.
Ways and means advances for state governments
The RBI further increased the ways and means advances limit for states by 60% over and above the level as on March 31, 2020 to provide greater comfort to the states for undertaking COVID-19 containment and mitigation efforts, and to plan their market borrowing programmes better.
The increased limit will be available till September 30, 2020.
In respect of all accounts for which lending institutions decide to grant moratorium or deferment as permitted last month, and which were standard as on March 1, 2020, the 90-day non-performing asset norm shall exclude the moratorium period.
However, with the objective of ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenges, they will have to maintain higher provision of 10% on all such accounts under the standstill, spread over two quarters of March 2020 and June 2020.
Extension of resolution timeline
In the case of large accounts under default, banks and financial institutions are currently required to hold an additional provision of 20% if a resolution plan has not been implemented within 210 days from the date of such default.
Due to the challenges faced in the resolution of stressed assets in the current volatile environment, RBI said it was extending the period for the resolution plan by 90 days.
Distribution of dividend
No commercial or co-operative bank is supposed to make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions.
Liquidity coverage ratio
To ease the liquidity position at the level of individual institutions, the LCR requirement for banks is being brought down to 80% from 100% with immediate effect.
The requirement shall be gradually restored in two phases – 90% by October 1, 2020 and 100% by April 1, 2021.
NBFC loans to commercial real estate projects
Loans given to commercial real estate projects by non-bank finance companies which are being delayed for reasons beyond the control of promoters can be extended by an additional year, over and above the one-year extension normally permitted, without being treated as restructuring, RBI said.