RBI announces measures to mitigate impact of COVID-19

The Reserve Bank of India has announced a set of measures to mitigate the effect of COVID-19. Among the major announcements, the Reserve Bank of India has decided to reduce the reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 4% to 3.75% with immediate effect. While the policy repo rate, MSF rate and the Bank rate will remain same as per decision taken in RBI’s 7th Bi-monthly Monetary Policy Statement for 2019-20.

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RBI has kept in view the following objectives in order to mitigate the impact of COVID-19 on Indian economy:

To maintain adequate liquidity in the system and its constituents in the face of Covid-19 related dislocations.
To facilitate & incentivise bank credit flows.
To ease the financial stress.
To enable the formal functioning of markets.

To fulfill the above objectives, the Reserve Bank of India has taken the following measures:

RBI has decided to undertake targeted long-term repo operations (TLTRO-2.0) for total amount of Rs 50,000 crore to begin with in tranches of appropriate sizes. RBI might increase this amount in future as per requirement.
The funds availed by banks under TLTRO-2.0 should be invested in grade bonds, Commercial Papers, Non-Convertible Debentures of NBFCs with at least 50% going to mid-sized NBFCs and MFIs.
RBI has announced the allocation of Rs 50,000 crore as special refinance facilities to All India financial institutions (AIFIs) such as NABARD, SIDBI, NHB to enable them to meet sectoral credit needs. These advances to the above organizations will be charged as per the RBI policy repo rate of 4.40%.
Out of total allocation of Rs 50,000 crore, National Bank for Agriculture and Rural Development (NABARD) will receive the amount of Rs 25,000 crore for the refinancing of Regional Rural Banks, cooperative banks and microfinance institutions.
Out of total allocation of Rs 50,000 crore,Small Industries Development Bank of India (SIDBI) will receive Rs 15,000 crore or on-lending and refinancing to scheduled commercial banks, non-banks and microfinance institutions.
The National Housing Bank will receive Rs 10,000 crore to support housing finance companies.
RBI has also decided to reduce the reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 4% to 3.75% with immediate effect while the policy repo rate will remain unchanged at 4.4%, Marginal Standing Facility (MSF) rate and the Bank rate will remain unchanged at 4.65%.
To provide greater comfort to the states for undertaking COVID-19 containment and mitigation efforts, the RBI has increased the ways and means advances (WMA) limit of states by 60% over and above the level as on March 31, 2020. 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, and which were standard as on March 1, 2020, it has been decided that the 90-day NPA norm shall exclude the moratorium period. It indicates that there would an asset classification standstill for all such accounts from March 1, 2020 to May 31, 2020.
RBI decides to extend the period for resolution plan by 90-days, citing the challenges faced during the resolution of stressed assets in the current volatile environment.
In view of the COVID-19 related economic shocks, the RBI has refrained the scheduled commercial banks and cooperative banks from making any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until the further instructions.
To ease the liquidity position at the level of individual institutions, the RBI has brought down the Liquidity Coverage Ratio (LCR) requirement for Scheduled Commercial Banks from 100% to 80% with immediate effect.