To ensure that businesses and small non-bank lenders remain debt-free during this extended lockdown period, The Reserve Bank of India has made funds available. On Monday, the RBI said that it would offer Rs 1 lakh crore to various banks via repo operations.
The objective behind this, as understood is to bridge over any cash requirement because of the disruptions caused due to coronavirus pandemic. This will enable borrowers with more time to repay their debts without being defaulters.
As the number of positive cases increased in the country, the central, as well as the state governments decided to extend the imposed lockdown to May 3. There are expectations that the shutdown will severely affect the earnings of India Inc.
The central bank in its released statement said, “The Reserve Bank is monitoring the evolving financial market conditions. The Reserve Bank will calibrate its operations to meet any need for additional liquidity support, if warranted, to ensure normal functioning of markets, promote staff welfare and preserve financial stability.”
This funding will be done in two equal tranches, first, a Rs 50,000 crore refinance facility to banks for lending to NBFCs by a new long-term repo operation. Second, a Rs 50,000 crore funding support by a reduction in rates on bank funds that are deposited with RBI.
Further, the apex court also said that primary dealers will be independently allowed to participate in these auctions along with other worthy participants. All other terms and conditions will remain the same.
The RBI governor, Shaktikanta Das said that the earlier TLTRO funds were used for investing in bonds issued by public sector entities and other conglomerates. In addition to this, the RBI has set aside funds for farm lending, SME lending, and housing finance.
Also, these lenders will be benefited a special refinance facility to enable refinancing to the extent of Rs 25,000 crore from NABARD. Along with Rs 15,000 crore from SIDBI and Rs 10,000 crore from the National Housing Bank (NHB).
Das has acknowledged the fact that the banks were exploiting their right to park excess funds under the reverse repo program. To curb this practice, RBI has cut the reverse repo rate by 25 basis points to 3.75% from 4%.
But, there have been concerns from various finance companies that this doesn’t address the key problem as banks are still skeptical in lending money. So, even though the RBI can’t force the banks, this will enable lenders to lend money if the government comes out with some suitable package.
According to Keki Mistry, the vice-chairman and CEO of HDFC the measures introduced by the apex bank do ease the market situation. He further added that although the direction to skip dividends will stop the dividends from coming in the overall impact would be offset in a consolidated balance sheet.
