RBI measures to boost liquidity, incentivise banks to lend more to boost economy: FM

Finance MinisterNirmala Sitharaman on Friday said the RBI has taken a slew of steps to maintainadequate liquidity in the system, incentivise bank credit flows, ease financialstress and enable normal functioning of markets, following difficulties beingfaced due to COVID-19.

Announcing a secondstimulus in less than a month, the RBI eased bad-loan rules, froze dividendpayment by lenders and pushed banks to lend more by cutting the reverse reporate by 25 basis points to help mitigate risk to the economy posed by thepandemic.

   

“In view ofthe difficulties being faced due to #COVID19, the @RBI has taken a slew ofsteps aimed at maintaining adequate liquidity in the system, incentivising bankcredit flows, easing financial stress, and enabling the normal functioning ofmarkets,” Sitharaman said in a tweet.

In order toincrease credit to farmers, MSMEs and housing sector, RBI announced a specialrefinance facility totalling Rs 50,000 crore for NABARD, SIDBI and the NationalHousing Bank, she said.

Of this, Rs 25,000crore goes to NABARD, Rs 15,000 crore to SIDBI, and Rs 10,000 crore to NHB forimproving long-term funding requirements of agriculture and the rural sector,small industries, housing finance companies, NBFCs and MFIs, the minister said.

“To increaseMSME liquidity, @RBI announced a targeted long-term repo operation totalling Rs50,000 crore aimed at mid and small NBFCs and MFIs. This amount can be revisedupwards if needed in the future. RBI also cut the reverse repo rate by 25 bpsto 3.75%,” Sitharaman said.

The reverse reporate is the rate banks earn by parking deposits with the Reserve Bank of India.

“In order toencourage banks to deploy these surplus funds in nvestments and loans inproductive sectors of the economy, it has been decided to reduce the fixed ratereverse repo rate under the liquidity adjustment facility (LAF) by 25 basispoints from 4 per cent to 3.75 per cent with immediate effect,” the RBIsaid.

However, the RBIretained the policy repo rate at 4.40 per cent, and the marginal standingfacility rate and the Bank Rate at 4.65 per cent.

She further saidthat to ease the worries of MSMEs that are in danger of becoming NPA accounts,it has now been decided that the NPA classification norms will exclude the3-month moratorium window that banks are allowed to give on loan repayments.

This effectivelymeans that bad loans or non-performing asset (NPA) classification will nowhappen after 180 days instead of the current policy of 90 days of paymentdefault.

This would coverthe borrowers of both banks and NBFCs but lenders will have to make anadditional provision of 10 per cent for those exposures under moratorium.

“The @RBI hasincreased the ways and means advance limit for states to 60 per cent over andabove the level as on March 31 to help state governments tide over cash flowproblems due to a temporary dip in revenue collections,” she said.

The RBI earlierthis month had announced an increase in the ways and means advances (WMA) limitof states by 30 per cent.

It has now beendecided to increase the WMA limit of states by 60 per cent over and above thelevel as on March 31, 2020 to provide greater comfort to the states forundertaking COVID-19 containment and mitigation efforts, and to plan theirmarket borrowing programmes better. The increased limit will be available tillSeptember 30, 2020.

The RBI hadannounced its first stimulus on March 27 to help the economy deal with theimpact of COVID-19 pandemic.

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