RBI announces Rs. 50,000 crore LTRO

BE/RBINOTE/19/2020

• RBI Governor Shaktikanta Das today announced new measures to maintain adequate liquidity in system, facilitate bank credit flow and ease financial stress
• RBI announced ₹50,000 crore worth of targeted LTRO and a cut in reverse repo rate

India is now in the second phase of a nationwide Lockdown to combat coronavirus, Reserve Bank of India (RBI) Governor Shaktikanta Das today announced new measures to boost liquidity, expand bank credit flow and ease financial stress.

1. To benefit NBFCs and micro-financial institutions, the central bank announced that it will conduct targetted long-term repo operations (TLTRO) worth ₹50,000 crore.
2. This follows the cutting of benchmark lending rate by 75 bps three weeks ago. Again, the RBI today cut the reverse repo rate to 25 basis points to 3.75%.
3. The central bank has also asked all banks to not make any dividend payments to shareholders keeping in mind the financial challenges during the Covid-19 pandemic.

HERE ARE ANNOUNCEMENTS OF THE RBI GOVERNOR

• RBI will monitor evolving situation continuously, use all its tool to deal with pandemic fallout.
• Loans given by NBFCs to real estate companies would get similar benefit as given by scheduled commercial bank.
• LCR requirement of banks brought down to 80% from 100% and would be restored in phases by April next year.
• Inflation is on a declining trajectory, is expected to recede even further
• Banks advised not to make any dividend payments until further orders
• NPA classification for banks will exclude the moratorium period
• Since economic activities have come to a standstill during lockdown, ₹50,000 crore special finance facility would be provided to financial institutions such as NABARD, SIDBI and NHB.
• REPO rate to remain unchanged.
• Reverse repo rate cut by 25 bps to 3.75%.

A note on TLTRO

• Targeted longer-term refinancing operations (TLTROs) are one of the ECB’s (European Central Bank) non-standard monetary policy tools. Through TLTRO long-term loans are provided to banks and incentives are offered to increase their lending to businesses and consumers in the euro area.
• This helps to return inflation rates to levels below, but close to 2% over the medium term. The first TLTRO series was launched in 2014. The second one, introduced in March 2016, is called TLTRO-II.
• Banks participating in TLTRO-II can borrow an amount up to 30% of their outstanding loans to businesses and consumers. This means that banks that lend more to the real economy will be able to borrow more and at a lower interest rate than the ECB usually offers. There will be four operations over the next twelve months, with the first one starting on 29 June 2016.