COVID 19Hot Off The PressNews

“It is when the horizon is the darkest and human reason is beaten down to the ground that faith shines brightest and comes to our rescue.”

RBI Governor Shaktikanta Das drew hope and inspiration from the 1929 statement of the Father of the Nation, as he announced yet another set of nine measures to smoothen the flow of finance and preserve financial stability in the turbulent and uncertain times ushered in by the COVID-19 pandemic. This follows the earlier sets of measures announced by RBI on April 17, 2020 and on March 27, 2020.

Making the announcements through an online address, the Governor stated that we must have faith in India’s resilience and capacity to overcome all odds. Expressing the confidence that we will together triumph over today’s traumatic trials, the Governor spoke with a sense of calling. He noted that the situation warrants that “central banks have to answer the call to the frontline in defence of the economy”.

Repo rate reduced by 40 basis points

The Governor has announced a reduction in major policy rates, in order to revive growth and mitigate the impact of COVID-19, while ensuring that inflation remains within the target. The repo rate has been reduced by 40 basis points from 4.4% to 4.0%. The Marginal Standing Facility rate and the Bank rate have been reduced from 4.65% to 4.25%. The reverse repo rate has been reduced from 3.75% to 3.35%.

 “Judging that the risks to growth are acute, while the risks to inflation are likely to be short-lived, the Monetary Policy Committee believes that it is essential now to instil confidence and ease financial conditions further. This will facilitate the flow of funds at affordable rates and rekindle investment impulses. It is in this context that the MPC voted to reduce the policy repo rate by 40 basis points from 4.4 per cent to 4.0 per cent” the Governor said.

Shri Das also announced a set of regulatory and developmental measures which he said complement the reduction in the policy rate and also strengthen each other.

He reiterated that the goals of the measures being announced are:

  • to keep the financial system and financial markets sound, liquid and smoothly functioning
  • to ensure access to finance to all, especially those that tend to get excluded by financial markets
  • to preserve financial stability

Measures to Improve the Functioning of Markets

  • Refinance Facility to SIDBI extended for another 90 days

In order to enable increased supply of affordable credit to small industries, the RBI had, on April 17, 2020, announced a special refinance facility of ?15,000 crore to SIDBI at RBI’s policy repo rate for a period of 90 days. This facility has now been extended by another 90 days.

  • Relaxation of Rules for Foreign Portfolio Investment under Voluntary Retention Route

The VRR is an investment window provided by RBI to Foreign Portfolio Investors, which provides easier rules in return for a commitment to make higher investments. The rules stipulate that at least 75% of the allotted investment limit be invested within three months; considering the difficulties being faced by investors and their custodians, the time limit has now been revised to six months.

Measures to Support Exports and Imports

  • Exporters can now Avail Bank Loans for Higher Period

The maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks to exporters has been increased from the existing one year to 15 months, for disbursements made up to July 31, 2020.

  • Loan facility to EXIM Bank

The Governor has announced a line of credit of ?15,000 crore to the EXIM Bank, for financing, facilitating and promoting India’s foreign trade. The loan facility has been given for a period of 90 days, with a provision to extend it by one year. The loan is being given in order to enable the bank to meet its foreign currency resource requirements, especially in availing a US dollar swap facility.

  • More time for Importers to Pay for Imports

The time period for import payments against normal imports (i.e. excluding import of gold/diamonds and precious stones/jewellery) into India has been extended from six months to twelve months from the date of shipment. This will be applicable for imports made on or before July 31, 2020.

Measures to Ease Financial Stress

  • Extension of Regulatory Measures by another 3 Months

The RBI has extended the applicability of certain regulatory measures announced earlier, by another three months from June 1, 2020 till August 31, 2020. These measures will now be applicable for a total period of six months (i.e. from March 1, 2020 to August 31, 2020). The aforesaid regulatory measures are: (a) 3-month moratorium on term loan instalments; (b) 3-month deferment of interest on working capital facilities; (c) easing of working capital financing requirements by reducing margins or reassessment of working capital cycle; (d) exemption from being classified as ‘defaulter’ in supervisory reporting and reporting to credit information companies; (e) extension of resolution timelines for stressed assets; and (f) asset classification standstill by excluding the moratorium period of 3 months, etc. by lending institutions. The lending institutions have been permitted to restore the margins for working capital to their original levels by March 31, 2021. Similarly, the measures pertaining to reassessment of working capital cycle are being extended up to March 31, 2021.

  • Provision to convert Interest on Working Capital into Interest Term Loan

Lending institutions have been allowed to convert the accumulated interest on working capital facilities over the total deferment period of 6 months (i.e. March 1, 2020 up to August 31, 2020) into a funded interest term loan, to be fully repaid during the course of the current financial year, ending March 31, 2021.

  • Increase of Group Exposure Limit to Increase Fund Flow to Corporates

The maximum credit which banks can extend to a particular corporate group has been increased from 25% to 30% of the bank’s eligible capital base. This has been done in order to enable corporates to meet their funding requirements from banks, in view of the current difficulties being faced by corporates in raising money from the markets. The increased limit will be applicable up to June 30, 2021.

Measures to ease financial constraints faced by State Governments

  • States allowed to borrow more from Consolidated Sinking Fund

The Consolidated Sinking Fund is being maintained by state governments as a buffer for repayment of their liabilities. The rules governing withdrawal from this Fund have now been relaxed, in order to enable states to enable them to repay their borrowings from the market, which become due in 2020-21. The change in withdrawal norms will come into force with immediate effect and will remain valid till March 31, 2021. The Governor added that the relaxation is being done, while ensuring that depletion of the Fund balance is done prudently.

Assessment of Economy

Presenting an assessment of the global economy, the Governor said that the macroeconomic and financial conditions are austere by all counts. He stated that the global economy is headed inexorably into a recession.

The domestic economy too has been severely impacted by the two-month lockdown, said the Governor. “The top 6 industrialised states that account for about 60 per cent of industrial output are largely in red or orange zones.” Demand has collapsed, production has come down, taking a toll on fiscal revenues. Private consumption has been dealt a severe blow.

The Governor said that agriculture and allied activities have provided a beacon of hope, amidst this encircling gloom. A ray of hope also comes from the forecast of a normal southwest monsoon in 2020 by the India Meteorological Department.

The Governor recalled that based on the incomplete data made available, food inflation, which had come down from its January 2020 peak for the second successive month in March, suddenly reversed and increased to 8.6% in April as supply disruptions took their toll, despite the current reduction in demand. India’s merchandise exports and imports suffered their worst slump in the last 30 years as COVID-19 paralysed world production and demand.

The Governor informed that the Monetary Policy Committee assessed that the inflation outlook is highly uncertain. The supply shock to food prices in April may persist for the next few months, depending upon the state of lockdown and the time taken to restore supply chains after relaxation. The elevated level of pulses inflation is worrisome, and warrants timely and swift supply management interventions, including a reappraisal of import duties.

Speaking of the road ahead for the economy, the Governor noted that the combined impact of demand compression and supply disruption will depress economic activity in the first half of the year. Assuming that economic activity gets restored in a phased manner, especially in the second half of this year, and taking into consideration favourable base effects, it is expected that the combination of fiscal, monetary and administrative measures being currently undertaken would create conditions for a gradual revival in activity in the second half of 2020-21.

Given all these uncertainties, GDP growth in 2020-21 is estimated to remain in negative territory, with some pick-up in growth impulses from H2: 2020-21 onwards. Much will depend on how quickly the COVID curve flattens and begins to moderate.


Reserve Bank of India

[Press Release dt. 22-05-2020]

[Source: PIB]

COVID 19Hot Off The PressNews

Significant pointers placed by RBI Governor Shaktikanta Das in the press conference:

  • Liquidity in markets
  • 150 RBI Staff quarantined.
  • Minimise market volatility.
  • Sizeable reduction in repo rate.
  • Relax repayment pressures.
  • Food prices expected to soften further.
  • Lending institutions to allow moratorium of 3 months.
  • Reduction in repo rate to 4.4%
  • Reduction in reverse repo rates by 90 basis points
  • 3 Month interest deferment on loans
  • Governor states that the Indian Banking System is safe and sound
  • Volatility in markets  would
  • Cash Reserve Ratio reduced by 3%
  • Banks can defer EMI Payments.

[To be updated with official press release]

What all does the Press Release statement consists? Read below:

  • MPC voted unanimously for a sizeable reduction in the policy repo rate and for maintaining the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19, while ensuring that inflation remains within the target. While there were some differences in the quantum of reduction, the MPC voted with a 4-2 majority to reduce the policy rate by 75 basis points to 4.4 per cent.
  • Simultaneously, the fixed rate reverse repo rate, which sets the floor of the liquidity adjustment facility (LAF) corridor, was reduced by 90 basis points to 4.0 per cent, thus creating an asymmetrical corridor. The purpose of this measure relating to reverse repo rate is to make it relatively unattractive for banks to passively deposit funds with the Reserve Bank and instead, to use these funds for on-lending to productive sectors of the economy. It may be recalled that during the month of March so far, banks have been parking close to Rupees 3 lakh crore on a daily average basis under the reverse repo, even as the growth of bank credit has been steadily slowing down.
  • This decision and its advancement has been warranted by the destructive force of the corona virus. It is intended to (a) mitigate the negative effects of the virus; (b) revive growth; and above all, (c) preserve financial stability.
  • We are living through an extraordinary and unprecedented situation. Everything hinges on the depth of the COVID-19 outbreak, its spread and its duration. Clearly, a war effort has to be mounted and is being mounted to combat the virus, involving both conventional and unconventional measures in continuous battle-ready mode. Life in the time of COVID-19 has been one of unprecedented loss and isolation. Yet, it is worthwhile to remember that tough times never last; only tough people and tough institutions do.
  • In the recent period, the Reserve Bank has been in action on a daily basis with efforts to alleviate financial stress, build confidence and keep the financial system sound and functioning. Measures taken by the Reserve Bank are given below.

 -a cumulative reduction in the policy repo rate of 135 basis points;

-accommodative stance of monetary policy as long as necessary to revive growth, while keeping inflation within the target. – two USD buy/sell swap auction of USD 5 billion each conducted on March 26 and April 23, 2019, injecting liquidity into the banking system amounting to ?34,561 crore and ?34,874 crore, respectively.

– seven open market purchases, injecting ?92,500 crore into the system.

– four simultaneous purchase and sale of government securities under Open Market Operations (special OMOs or what is known as operation twist) during December and January (December 23 and 30, 2019 and January 6 and 23, 2020) to ensure better monetary policy transmission.

– five long term repo operations (LTROs) between February 17 and March 18, 2020 for one-year and three-year tenors amounting to ?1,25,000 crore of durable liquidity at reasonable cost (fixed repo rate).

– exemption on incremental credit disbursed by banks between January 31-July 31, 2020 on retail loans for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs) from the maintenance of cash reserve ratio (CRR).

– two 6-month US Dollar sell/buy swap auction providing dollar liquidity amounting to USD 2.71 billion.

– fine-tuning variable rate repo auctions of ?50,000 crore and ?25,000 crore of 8 days and 3 days maturity on March 26 and March 31, respectively, with standalone primary dealers (SPDs) allowed to participate.

– fine-tuning variable rate Repo auction of 16-day maturity amounting to ?81,585 crore on March 23-24, 2020.

-The amount under the Standing Liquidity Facility (SLF) available for standalone primary dealers was enhanced from ?2,800 crore to ?10,000 crore on March 24, 2020 and this will be available till April 17, 2020.

*To read the detailed press note, please follow the link given below:

PRESS NOTE


Reserve Bank of India

Business NewsNews

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (October 4, 2019) decided to:

  • reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 5.15 per cent from 5.40 per cent with immediate effect.

Consequently, the reverse repo rate under the LAF stands reduced to 4.90 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.40 per cent.

  • The MPC also decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.


Reserve Bank of India

Business NewsNews

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today decided to:

• reduce the policy repo rate under the liquidity adjustment facility (LAF) by 35 basis points (bps) from 5.75 per cent to 5.40 per cent with immediate effect.

Consequently, the reverse repo rate under the LAF stands revised to 5.15 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 per cent.

• The MPC also decided to maintain the accommodative stance of monetary policy.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.


Reserve Bank of India

[Press Release dt. 07-08-2019]