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RBI Governor announces new measures to ease financial distress amidst coronavirus lockdown

The RBI will provide a ₹50,000 crore finance facility to financial institutions such as the National Housing Bank (NHB), National Bank For Agriculture & Rural Development (NABARD) and Small Industries Development Bank of India (SIDBI).

During a press conference on Friday, RBI Governor Shaktikanta Das assured everyone that the Reserve Bank of India (RBI) would do whatever it can to ease financial distress, ensure liquidity in the market and facilitate bank credit flow. He, however, conceded that the market had taken a hit in some areas.

Das praised the banks and other financial institutions for ensuring normal functioning, amidst the Wuhan Coronavirus outbreak. Quoting the International Monetary Fund projection of 1.9% Gross Domestic Product (GDP) growth, he said that India’s growth would be the highest among the G20 countries and that the economy would turn around by 2021-2022.

Ensuring Liquidity in the Market

The RBI Governor informed that Targeted longer-term refinancing operations (TLTRO) 2.0 operations of ₹50,000 crores will be conducted. While the repo rate (the rate at which RBI lends money to commercial banks) has remained unchanged, the reverse repo rate (the rate at which the RBI borrows money from the commercial banks) has been cut by 25 bps to 3.75%. The redemption pressures faced by some mutual funds have also been moderated.

Measures for the Banking Sector

The banks have been asked to not pay dividends to shareholders until further notice. the RBI Governor also informed that the Non-Performing Asset (NPA) classification for banks will exclude the moratorium period (waiting period before a borrower begins repaying his loan).

The Liquidity Coverage Ratio (proportion of liquid assets that help meet short-term financial obligations) requirement of banks have also been decreased from 100% to 80%.

Measures for other Financial Institutions

The RBI will provide a ₹50,000 crore finance facility to financial institutions such as the National Housing Bank (NHB), National Bank For Agriculture & Rural Development (NABARD) and Small Industries Development Bank of India (SIDBI). The loans sanctioned by Non-Bank Financial Companies (NBFCs) to real estate companies will receive same benefit as that of scheduled Commerical banks.

Finance ministry package

On 26 March, Finance Minister Nirmala Sitharaman held a press conference and announced a financial package that would take care of the welfare concerns of the poor and the suffering migrant workers after the 21-day lockdown has been announced to arrest the spread of Wuhan Coronavirus.

The package was called ‘Prime Minister Gareeb Kalyan Yojana’ and totalled a whopping 1.70 lakh crores. The Finance Minister said that one side of the scheme would focus on cash transfers through DBT (Direct Benefit Transfer) and the other would focus on food security as the government does not want anyone to remain hungry.

 

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