With yesterdays announcement of the RBI Governor on yet another set of TLTRO (Targeted Longer Term Refinance Options), mainly focused on NBFC’s to help support them and smaller businesses, let us analyze the Key Points announced by the Guv.
LTRO indicates that the Bank will lend funds to the Commercial Banks at the Repo Rate. The TLTRO operations are done for a period of over 3 Years as opposed to the normal LTRO which stretch from 1 to 90 days. This has been done by the RBI to provide additional liquidity to banks and other institutions during these uncertain times.
Special refinancing options to NABARD, SIDBI and NHB to the tune of 50,000 Crores (25,000, 15,000 and 10,000 Crores Respectively), to help meet their sectoral credit needs. help refinance small and medium enterprises loans. TLTRO 1.0 was mainly focused on PSU’s and Larger Corporations and had failed to meet the needs of the MSME’s and that is why the Second Set of Operations have been performed.
He also said that the RBI is ready to further increase the amount allotted to NBFC’s and explicitly stated that at least 50% of the amount must go to Small Sized NBFC’s and MFI’s within 1 Month of the Banks receiving the Credit Facilities. He said that the first set of auctions will be conducted on 23rd April, 2020, as mentioned on their website.
It was further Stated that the 90 Day NPA norm will not apply for the Moratorium granted by banks on the existing loans. it also reduced the LCR (Liquidity Coverage Ratio) for Scheduled Commercial Banks from 100% to 80% for the crisis, but said that this will gradually be brought back to the former rate in two stages, i.e, 90% and then 100%. This will also help banks maintain liquidity during the crisis. The incumbent also stated “Loans given by NBFCs to real estate companies to get similar benefit as given by scheduled commercial banks.”
The Fixed Reverse Repo Rate (the rate at which banks park their additional funds with the RBI) was also reduced by 25 basis points (0.25%) whereas the Repo rate was kept unchanged at 4.4% to increase the spread between the two. Lowering the Reverse Repo Rate will discourage banks from keeping their excessive funds with the Apex Institution and will encourage them to lend it out to Corporates and other Businesses. The Governor stated that the Banks had enough Forex Reserves, which were sufficient to meet 11.8 Months of Imports.
Ironically, the Governor, in his speech also said that the RBI had received inflows under the Reverse Repo Operations of the banks’ excessive funds of Rs. 6.9 Lakh Crore, suggesting that there was adequate liquidity in the economy. He also asked Scheduled Commercial banks and Co Operative Banks to not make any dividend payouts for the Fiscal ended March 2020, in lieu of maintaining additional liquidity and conserving capital to meet future requirements.
Das also suggested that India was looking at a V shaped recovery for the Economy, and cited the IMF (International Monetary Fund’s) report which showed the economy growing at 7.4% in 2020-21, which brought about positive sentiments among investors. The Markets also closed the day with both indices gaining over 3% for the day indicating that the RBI had done a fair job to boost investor sentiments. Governor Das promised that the central bank would do more if needed.
But the looming question still remains, are these 2 TLTRO operations enough to tackle the Virus? Although Das has explicitly stated that the Reserve Bank has adequate reserves to fight the impact of the virus, will India Inc. require another stimulus package from the Government or will this suffice? Although the Finance Minister had stated “Additional measures, economic stimulus to be provided soon,” whether the package will be what the economy requires will only be revealed later on. India Inc. is keenly looking forward to this stimulus and maybe needs it direly as well.
The Financial Forum 
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