RBI Announcement updates Post Coronavirus in India

RBI Governor Shaktikanta Das addresses media at 10 AM on March 27

The RBI has allowed banks to provide a 3-month moratorium on loans and EMI repayments. It has also slashed key repo rate by 75 basis points to 4.4 percent in order to revive growth as India battles Covid-19.

Repo rate now stands at 4.40 percent vs 5.15 percent earlier

Beginning March 25, for a period of three weeks, India is under a complete lock-down to curb the spread of the COVID-19. This will have an impact across key economic segments including manufacturing, services, construction, and tourism. On March 26, the government announced a mix of measures including direct cash transfers and distribution of free food grains for a period of three months to help the economically weaker sections of the society tide over the crisis phase. Now, it is RBI’s turn.

Highlights of the Press Conference are as below:

• Reserve Bank of India (RBI) governor Shaktikanta Das March 27 announced a massive 75 basis points cut in repo rates as a measure to counter the economic slowdown caused by the COVID-19 pandemic.
• The reverse repo rate has been cut by 90 basis points to 4 percent. Das said this has been done to make it unattractive for banks to passively deposit funds with the RBI and instead lend it to the productive sectors.
• The RBI announced substantial liquidity measures saying it will conduct up to three-year tenure for an amount of up to Rs 100,000 crore at a floating rate linked to the policy repo rate. Under this, liquidity has to be deployed in investment-grade corporate bonds, commercial papers, the RBI said. The investment made by banks will be considered as held to maturity, the RBI said.
• The RBI has also cut CRR (cash reserve ratio) heavily by 100 bps to 3 percent of NDTL, effective from the fortnight beginning March 28, releasing Rs 137,000 crore liquidity in the banking system, Das said. The minimum daily requirement of CRR maintenance has been brought down to 80 percent from 90 percent.
• The marginal standing facility, from 2 percent to 3 percent of SLR, released an additional Rs 1.37 lakh crore to the system under the LAF window at the reduced MSF rate.
• The RBI governor has said that all banking institutions can offer a three-month moratorium on all loans for a period of three months. The RBI has also allowed banks to restructure the working capital cycle for companies without worrying that these will have to be classified as NPA.

CONCLUSIONS: RBI announced a bold set of measures amounting to ~3.2 percent of GDP to fight coronavirus will be well taken by the market. Measures of no asset classification downgrade for three months on term loans, working capital loans moratorium will be a relief for the industry. Providing liquidity in investment-grade corporate bonds will help in improving the currently stalled credit markets. Additionally, CRR cuts of 100 bp along with repo and reverse repo cuts are likely to help induce additional liquidity. We had hoped for any additional liquidity window for NBFCs & MFs which hopefully with the possible backstop from the government RBI may be able to provide in the future.