Amid the growing COVID-19 concerns and weakening economic activity, the Reserve Bank of India (RBI) interacted with media in a press conference minutes back.
Speaking to the media, RBI Governor Shaktikanta Das made some key announcements including special packages for the public and economic welfare.
The announcements were focused on maintaining cash liquidity, credit flows and contain financial stress.
Addressing the concerns of Non-Banking Financial Corporations (NBFCs) and micro financial institutions, RBI announced Long Term Repo Operations (TLTRO) worth Rs. 50,000 crore along with a cut in reverse repo rate.
After a benchmark cut in reverse lending rate by 75 basis points, RBI now decided to cut the reverse repo rate by another 25 basis points to 3.75 percent.
The Central Bank also directed all banks to not make any dividend payments until the further orders from RBI.
In a relief to NBFCs, RBI said NBFC loans to real estate companies will derive all benefits that scheduled commercial bank loans usually get.
The Liquidity Coverage Ratio (LCR) has also been reduced from 100 percent to 80 percent and will be restored from April 2021 in a phase-wise manner.
According to the RBI Governor, the economic activity has come to a standstill due to the lockdown. The inflation is already declining and will recede further.
He further informed that electricity demand, automobile production and sales in March 2020 witnessed a sharp decline.
However, the Index of Industrial Production (IIP) for February 2020 did not report any COVID-19 impact.
ATM Operations were at 91 percent and there was no downtime on internet and mobile banking.
Citing IMF projections for India at 1.9 percent, RBI Governor said India will see a sharp turnaround for FY 2021-22.
According to RBI, Indian Rupee has improved by 29 paisa against the US Dollar and Sensex increased by 1,000 points before the RBI live announcement.
Experts’ Response to RBI Announcements
Responding to RBI’s decision of pumping in Rs. 50,000 crore, Rajosik Banerjee, Partner and Head – Financial Risk Management at KPMG India, said this will initiate more fund transmission to corporate sector.
Meanwhile, Dhiraj Relli, MD & CEO, HDFC Securities says RBI is taking a three-pronged approach. One to push banks to do more lending, other by providing more credits to NBFCs and alleviate the stress on state governments by rising the States Ways & Means Advances (WMA) limit to 60 percent.
“Allowing a 90-day extension for asset classification to loans that have been granted moratorium window is a critical step to assuage credit quality concern of lenders,” says Shishir Baijal, Chairman & Managing Director, Knight Frank India.
More experts lauded the RBI’s latest announcements in offering relief to the Indian economy and the country’s business activity.
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