RBI Press Conference: NBFCs can grant relaxed NPA classification to their borrowers

Reserve Bank of India (RBI) Governor Shaktikanta Das in his address to the press today said RBI has been proactive and has been monitoring COVID-19 evolving situation. He said Mission is to do whatever it takes to prevent the curve from deepening.

At the same time, he thanked all those, like health workers, police staff and other service providers, who are at the forefront of the battle against COVID-19. He said, targeted long-term repo operation (TLTRO) auction of Rs 25,000 crore to be conducted today to ensure adequate liquidity is available in the system.

He also informed that the RBI will undertake TLTRO 2.0 for Rs 50,000 crore, to begin with. The investments made in the second TLTRO is likely to be classified as Held to Maturity (HTM). Detailing about the same, he said, 50 per cent of TLTRO money to midsized and small NBFCs, MFIs. Money raised via TLTRO-2 must be invested in investment-grade bonds of NBFCs.

Highlights of today's Press Brief

1) Reverse repo rate cut 25 bps to 3.75 per cent from 4 per cent, but the policy repo rate has been kept unchanged.

GDP Growth

1) India is expected to post sharp turnaround by growing at 7.4 per cent in FY22 as per IMF.

2) In 2020 the global economy is expected to plunge into the greatest recession.

3) IMF estimates cumulative loss to global GDP in 2021, 2022 at $9 trillion.

4) India expected to cling on to 1.9 per cent growth as estimated by IMF.

Exports

1) The governor said exports have contracted at 34 per cent which has turned out to be much worse than in the global financial crisis.

2) Services PMI contracted due to a sharp downturn due to export hit

3) Forex reserves stand at $476.5 billion and are equivalent to 11.8 months of imports for India.

4) RBI's liquidity injection into the system, since February 6-March 27, 2020, has been at 3.2 per cent of the GDP.

5) COVID-19 impact has not captured in IIP print, so there is no need to get mislead by that data.

6) Systemic liquidity surplus averaged at Rs 4.36 lakh crore as of March-end 2020.

Special Refinance Facilities

1) Special refinance facilities of Rs 50,000 crore will be provided to NHB, SIDBI and NABARD.

2) SIDBI will be provided Rs 15,000 crore to provide refinancing to banks for SME loans.

3) NHB to be given Rs 10,000 crore for refinancing housing finance companies (HFCs).

4) NABARD to get Rs 25,000 crore.

NPA classification relaxed

1) NBFCs can grant relaxed NPA classification to their borrowers.

Banks

1) Banks must invest 50 per cent of funds under TLTRO-2 to small, mid-sized NBFCs

2) They will have to maintain additional provisioning of 10 per cent on standstill accounts.

Moratorium

1) 90-day NPA norm not to apply on moratorium granted on existing loans by banks

2) RBI says, banks and cooperative banks shall not make any dividend payouts until further notice

3) Banks must provide more for accounts availing moratorium

4) Liquidity coverage ratio requirement for banks has been brought down to 80% from 100% with immediate effect.

NBFCs

NBFCs can extend realty loans by 1 year if projects delayed on reasons beyond control.

Inflation

1) Inflation could further decline and settle below 4% by H2FY21.

RBI has covered four major points through the announcement and they are (i) easing of financial stress, (ii) It tried to maintain liquidity in the system, (iii) It facilitated and incentivised bank credit flows and (iv) It enabled formal working of the markets.

This was the second press briefing by the RBI's governor since the COVID-19 outbreak began in India. In his previous address on March 27, Das had announced a rate cut of 75 basis points.