The Reserve Bank of India (RBI) has reduced the fixed rate reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from four percent to 3.75 percent with immediate effect.
The policy repo rate remains unchanged at 4.40 percent, and the marginal standing facility rate and the bank rate will remain unchanged at 4.65 percent.
RBI has undertaken measures to target liquidity provision to sectors and entities which are experiencing liquidity constraints and/or hindrances to market access.
The apex bank has decided to conduct targeted long-term repo operations (TLTRO 2.0) for an aggregate amount of Rs 50,000 crore, to begin with, in tranches of appropriate sizes.
The funds availed by banks under TLTRO 2.0 will be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 percent of the total amount availed going to small and midsize NBFCs and MFIs. These investments have to be made within one month of the availability of liquidity from RBI.
As in the case of TLTRO auctions conducted hitherto, investments made by banks under the facility will be classified as held to maturity (HTM) even in excess of 25 percent of total investment permitted to be included in the HTM portfolio.
The central bank has also decided to provide special refinance facilities for a total amount of Rs 50,000 crore to the National Bank for Agriculture and Rural Development (NABARD), the Small Industries Development Bank of India (SIDBI) and the National Housing Bank (NHB) to enable them to meet sectoral credit needs.
This will comprise Rs 25,000 crore to NABARD for refinancing regional rural banks (RRBs), cooperative banks and micro finance institutions (MFIs); Rs 15,000 crore to SIDBI for on-lending/refinancing; and Rs 10,000 crore to NHB for supporting housing finance companies (HFCs). The advances under this facility will be charged at RBI’s policy repo rate at the time of availability.
In terms of the extant guidelines for banks, the date for commencement for commercial operations (DCCO) in respect of loans to commercial real estate projects delayed for reasons beyond the control of promoters can be extended by an additional one year, over and above the one-year extension permitted in normal course, without treating the same as restructuring. RBI has extended a similar treatment to loans given by NBFCs to commercial real estate. The move will provide relief to NBFCs as well as the real estate sector.
The regional offices of RBI have supplied fresh currency of Rs 1.2 lakh crore from 1 March 2020 till 14 April 2020 to currency chests across the country to meet increased demand for currency in the wake of the COVID-19 pandemic.
Together with the measures announced by RBI on 27 March 2020, RBI’s liquidity injection was about 3.2 percent of GDP since the February 2020 MPC meeting.
The systemic liquidity surplus, as reflected in net absorptions under LAF, averaged Rs 4.36 lakh crore during 27 March 2020 to 14 April 2020. It undertook three auctions of targeted long term repo operations (TLTRO), injecting cumulatively Rs 75,041 crore to ease liquidity constraints in the banking system and de-stress financial markets. Another TLTRO auction of Rs 25,000 crore is being conducted on 17 April 2020.