The RBI on Friday further eased bad loan rules, froze
dividend payment by lenders and pushed banks to lend more by cutting the
reverse repo rate by 25 basis points, as it unveiled a second set of measures
to support the economy hit hard by a coronavirus-led slowdown.
In
his second televised address since the nationwide lockdown began from March 25,
the Reserve Bank of India (RBI) Governor Shaktikanta Das pledged to boost
liquidity and expand bank credit.
In a measure that effectively meant that bad loans or
non-performing asset (NPA) classification will now happen after 180 days
instead of the current policy of 90 days of payment default, the RBI announced
an asset status freeze on loans that have been granted moratorium or deferment
on interest/principal payment.
This
would cover the borrowers of both banks and NBFCs.
This
means that the moratorium period will not lead to a spurt in NPAs in the system
and will allow the borrowers across retail, small and medium-sized enterprises
(SMEs) and corporates availing the moratorium to access additional funding from
banks or non-banking financial companies (NBFCs).
Das,
however, said lenders will have to make an additional provision of 10 per cent
for those exposures under moratorium.
RBI cut the reverse repurchase rate, a tool to control
the money supply, to 3.75 per cent with immediate effect to encourage banks to
deploy surplus funds within the system towards lending.
The
reverse repo rate cut will discourage banks from parking cash with the RBI and
encourage them to lend to the economy.
It
kept its benchmark repo rate, which was reduced late last month, unchanged at
4.40 per cent.
The
central bank also allowed states to borrow 60 per cent more via ways and means
advance facility available and extended the increased limit until September
30.
To
preserve capital, RBI asked banks not to pay any further dividends for the
fiscal year ended March 31.
"It
is imperative that banks conserve capital to retain their support for the
economy and absorb losses in an environment of heightened uncertainty,"
Das said.
The
dividend curbs will be reviewed in the quarter ending September 30.
Regulators around the globe
have similarly advised lenders to cut or delay dividends so as to ensure that
they have enough buffers to weather what the International Monetary Fund (IMF)
predicts to be the worst global recession since the 1930s.
RBI will inject Rs 50,000
crore in a new round of targeted long-term repo operations and asked banks to
use the funds availed through this facility to benefit NBFCs and micro-finance
institutions among others.
The RBI had on March 27
announced a steep 75 basis points cut in the repo rate, slashed cash reserve
ratio and permitted a three-month moratorium on all loans, including home
loans, extended by commercial banks and lending institutions.
"Since March 27, 2020,
when I spoke to you last, the macroeconomic and financial landscape has
deteriorated, precipitously in some areas; but light still shines through
bravely in some others," Das said.
"India is among the
handful of countries that is projected to cling on tenuously to positive growth
(at 1.9 per cent). In fact, this is the highest growth rate among the G-20
economies," he said adding the World Trade Organisation sees global
merchandise trade contracting by as much as 13-32 per cent in 2020.
For 2021, the IMF projects
sizable V-shaped recoveries: close to 9 percentage points for global GDP.
"India is expected to post a sharp turnaround and resume its pre-COVID
pre-slowdown trajectory by growing at 7.4 per cent in 2021-22."
RBI also announced a Rs
50,000 crore special refinance to pan-India financiers like Sidbi, Nabard and
NHB that provide affordable funds to the rural sector and agriculture.
Of this, Rs 10,000 crore
will be for National Housing Bank (NHB) which will ease some of the liquidity
challenges for housing financing companies to get bank financing.
RBI has also allowed NBFC
loans to delayed commercial real estate projects to be extended by a year
without restructuring.
In a move that will bring
much-needed relief to cash-starved developers, the RBI has further extended the
date of commencement of commercial operations (DCCO) of project loans for
commercial real estate projects which are delayed for reasons beyond the
control of promoters.
It will help in easing out
time for maintaining and managing cash flows for these developers.
The Indian economy may be
headed for a rare quarterly contraction during April-June as businesses shut
down and restrictions on the movement of people and goods imposed through the
world's biggest lockdown.
The lockdown which was
initially for 21 days, has been extended till May 3.
"The RBI will monitor
the evolving situation continuously and use all its instruments to address the
daunting challenges posed by the pandemic," he said.
Commenting on the measures,
Rumki Majumdar, Economist, Deloitte India, said: "The over-arching goal of
the RBI announcements has been to ensure enough liquidity in the market,
availability of credit, and sustenance of the MSMEs.
"The recent outbreak
of the coronavirus pandemic has hit MSMEs, which account for 45 per cent of total
manufacturing output and 40 per cent of exports."
MSMEs are facing a double
whammy -- a supply disruption in the one hand, and a fall in sales orders and
revenues on the other.
Meanwhile, RBI expects
inflation to ease, which gives some headroom to act.
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