- 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.
- 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.
- 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%.
- 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.