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With economic activity coming to a virtual standstill, in the wake of the 40-day lockdown imposed by the government to contain the Coronavirus pandemic, the Reserve Bank of India (RBI), on April 17, 2020, announced a slew of measures to boost liquidity in the system and expand credit.
Apart from slashing the reverse repo rate by 25 basis points (bps) from 4% to 3.75%, the central bank plans to infuse Rs 50,000 crores into the system, in order to help banks, housing finance companies (HFCs), non-banking finance companies (NBFCs), etc., under a new round of targeted long-term repo operations (TLTRO).
These measures are over and above the Rs 3.74-lakh crore liquidity infusion announced by the RBI on March 27, 2020. On the same day, the RBI reduced repo rate by a massive 75 basis points, to bring it down to a 15-year low of 4.4%.
Addressing the media for the second time since the centre first imposed a lockdown starting March 25, RBI governor Shaktikanta Das said the banking regulator was open to using any instrument, conventional and unconventional, to mitigate the economic fallout of the virus.
Key RBI announcements on April 17
|*Reverse repo rate reduced by 25 bps to 3.75%. Reverse repo rate is the rate at which the RBI borrows money from scheduled banks.|
* Second tranche of Rs 50,000-crore relief package, meant specifically for NBFCs; half the money meant for smaller and medium-sized NBFCs.
*Rs 10,000-crore special refinance facility for the National Housing Bank (NHB) to support HFCs.
* States to borrow 60% more via ways and means allowance.
* NPA classifications to exclude the 3-month moratorium period till May-end.
Under the plan, NBFCs will be allowed to grant relaxed NPA (non-performing asset) classification to their borrowers, in a move that comes as a great breather for India’s liquidity-starved real estate developers, who primarily rely on non-banking financers for their funding requirements.
“NBFCs’ outstanding credit to commercial real estate stood at Rs 1,29,359 crores, as of September 2019. The relaxation of NPA classification norms and extension of one year for commencement of projects to real estate developers by NBFCs, will provide relief to the sector,” said Ramesh Nair, CEO and country head, JLL India. “The refinance facility to the extent of Rs 10,000 crores to the NHB is a welcome move, to provide the much-needed liquidity to HFCs,” Nair added.
Apart from that, NBFCs’ loans to delayed commercial real estate projects can be extended by a year without restructuring. The RBI has also clarified that the loans given by NBFCs to real estate companies, would enjoy similar benefits as credit provided by scheduled commercial banks. “This time the RBI has addressed the issues faced by the realty sector, too. This is a clear indication that the government understands the importance of the second-largest employer in India,” said Pradeep Aggarwal, founder and chairman, Signature Global and chairman of the National Council on Affordable Housing, Assocham.
“With COVID-19 badly impacting the cash flow of all the sectors of the economy, including real estate, most of the sectors will rely heavily on the financial sector, for survival. In such a scenario maintaining liquidity in the system becomes crucial and today’s RBI announcements are a step in the same direction,” said Raman Gupta, director – branding and construction, GBP Group, adding that banks should participate in the endeavour.
RBI stimulus to benefit small and medium NBFCs
The banking regulator also clarified that half the money in the second tranche is meant for smaller and medium-sized NBFCs. “The RBI has taken these measures, as it realised that despite the lowering of rates, banks were only lending to large corporates and not to mid-size and small businesses or real estate. We hope this and more steps from the RBI, will prompt banks and NBFCs to provide the required liquidity in the sector,” said Uddhav Poddar, MD, Bhumika Group.
The RBI has also further extended the date of commencement of commercial operations of project loans for commercial real estate projects, delayed for reasons beyond their control.
The RBI action follows the various projections that India’s economy may be heading for a rare quarterly contraction in the April-June period and may shrink, because of the 40-day lockdown. While the World Bank and the IMF have predicted that growth will slip to 1.5%-2.8% and 1.5%, respectively, Barclays has projected zero growth for 2020.
“The mission is to minimise the epidemiological damage in the country, due to the Coronavirus. I want to convey the RBI’s resolve and the way forward,” said the RBI governor.