Coronavirus Fallout: RBI Announces Rs 50,000 Crore TLTRO, Reduces Reverse Repo Rate And More

Reserve Bank of India (RBI) Governor Shaktikanta Das while addressing a press conference on Friday (17 March) announced several measures in light of the coronavirus outbreak in India.

Notably, this is the second time that the governor has addressed the media since the nationwide lockdown was imposed from 25 March.

This comes a day after Finance Minister Niramala Sitharaman met PM Narendra Modi to discuss the prevailing economic situation and possible relief measures.

In his address, the RBI governor announced conduction of targeted long-term repo operation (TLTRO 2.0) of Rs 50,000 crore to ensure liquidity in non-banking financial companies (NBFCs) and microfinance institutions (MFIs).

Das kept the repo rate unchanged while reduced the fixed reverse repo rate under liquidity adjustment facility (LAF) by 25 basis points from 4 per cent to 3.75 per cent.

He also announced Rs 50,000 crore booster package to financial institutions such as Nabard, Sidbi, NHB. This will allow these institutions, which lend to rural banks, housing finance companies and small businesses, to raise money cheaply at a time when the markets are not able to generate that kind of resources. This refinance will be available at 4.4 per cent — which allows them to onlend the money at a low rate.

He also added that India will witness sharp recovery post covid-19 lockdown and is slated to witness growth rate of 7.4 per cent in 2020-21.

To enable banks to retain capital, they have been barred from making any further dividends after 31 March 2020 for six months. Their liquidity coverage ratio (LCR) has also been eased to 80 per cent (currently they need liquidity coverage of 100 per cent of needs), and the old level of 100 per cent will have to be achieved in two stages, to 90 per cent and 100 per cent by 1 October 2020 and 1 April 2021.

The LCR is the amount banks must hold in easily encashable securities that can be converted to cash to meet any unexpected crisis in the short term, usually 30 days.

He also announced a 90-day extension for the resolution period for large stressed assets which have not been resolved within the 210 day deadline as per the central banks June 7, 2019 order.