Reserve Bank of India (RBI) Governor Shaktikanta Das has announced much- needed relief for small and medium- sized financial organizations including NBFCs and MFIs, which have been struggling to operate in the wake of Covid-19 pandemic. Several measures are announced to provide liquidity, facilitate bank credit, and enable the normal functioning of the markets to fight against the deadly coronavirus.

Liquidity Management by Targeted Long Term Repo Operations 2.0 (TLTRO 2.0).
The RBI has sought to engender conducive financial conditions and normal functioning of financial markets and institutions by providing adequate system of liquidity as well as targeted liquidity provision to sectors and entities experiencing liquidity constraints or hindrances to market access.

It has been decided to conduct Targeted Long Term Repo Operations 2.0 for a total amount upto ₹50000 crores. Banks would be required to deployed the funds in investment grade bonds, commercial paper (CPs) and non-convertible debentures (NCDs) of NBFCs and MFIs. At least 50 percent of the total funds availed shall be apportioned as given below:

• 10 per cent in securities/instruments issued by Micro Finance Institutions (MFIs);
• 15 per cent in securities/instruments issued by NBFCs with asset size of ₹500 crore and below; and
• 25 per cent in securities/instruments issued by NBFCs with assets size between ₹500 crores and ₹5,000 crores.

 
Refinancing facilities for All India Financial Institutions like NABARD, SIDBI, NHB, etc.
NABARD, SIDBI, NHB plays a very important role in the economy as it provide lending facilities to the agriculture sector , rural sector, small MFIs and others etc. But now due to Covid-19 such banks are not able to satisfy the needs of the agricultural and rural sectors.

For this RBI has been decided that special refinancing facilities of ₹50000 crores will be provided to them, so that they can meet the need of the sectors. According to special refinancing facility:

• ₹25000 crore goes to NABARD for refinancing Regional Rural Banks, Corporate Banks, Micro Financing Institutions.
• ₹15000 crore goes to SIDBI for providing financing facilities to the NBFCs, MFIs, Scheduled Commercial Banks, and Other financial institutions so that they can further meet the needs of MSMEs.
• ₹10000 crore goes to NHB for supporting Housing Finance Companies.

 
Advances that are provided to these institutions will be charged at RBI Repo Rate.

Liquidity Adjustment Facility
RBI says that banks have too much liquidity that they kept with us in Reverse Repo Rate system .So there is need to adjust the liquidity that is with the banks and to encourage the banks to deploy the available surplus in investments and loans to productive sectors of the economy, for this RBI decided to reduce the interest rate on fixed rate reverse repo under the Liquidity Adjustment Facility (LAF) by 25 basis points from 4.00 per cent to 3.75 per cent with immediate effect.

The policy repo rate under the LAF remains unchanged at 4.40 per cent and the interest rate on the marginal standing facility (MSF) under the LAF and the Bank Rate remain unchanged at 4.65 per cent.

Ways and Means Advances for States
The Reserve Bank of India has provided relief to State Governments by increase the WMA limit of states by 60% over and above the level as on March 31, 2020. This has been decided by the RBI to provide greater comfort to the states for undertaking Covid-19 containment and mitigation efforts and to plan their market borrowing programs better.

The increased limit will be available till September 30, 2020.

Regulatory Measures
The lending institutions were permitted to grant a moratorium of three months on payment of all term loan instalments falling due between March 1, 2020 and May 31, 2020 (‘moratorium period’). As such, in line with the clarification provided by the Basel Committee on Banking Supervision, in respect of all accounts classified as standard as on February 29, 2020, even if overdue, the moratorium period, wherever granted, shall be excluded by the lending institutions from the number of days past-due for the purpose of asset classification under the IRAC norms.

Lending institutions shall make general provisions of not less than10% of the total outstanding of such accounts, to be faced over two quarters as under:

• Quarter ended March 31, 2020 – not less than 5 per cent
• Quarter ending June 30, 2020 – not less than 5 per cent

 
The above provisions may be adjusted against the actual provisioning requirements for slippages from the accounts reckoned for such provisions. The residual provisions at the end of the financial year can be written back or adjusted against the provisions required for all other accounts.

Lenders are required to implement a resolution plan in respect of entities in default within 180 days from the end of Review Period of 30 days.

On a review, it has been decided that in respect of accounts which were within the Review Period as on March 1, 2020, the period from March 1, 2020 to May 31, 2020 shall be excluded from the calculation of the 30-day timeline for the Review Period. In respect of all such accounts, the residual Review Period shall resume from June 1, 2020, upon expiry of which the lenders shall have the usual 180 days for resolution.

In respect of accounts where the Review Period was over, but the 180-day resolution period had not expired as on March 1, 2020, the timeline for resolution shall get extended by 90 days from the date on which the 180-day period was originally set to expire.

Declaration of Dividend by Banks
As per current situation the uncertainty caused by Covid-19 pandemic, it is very important that banks maintain a sufficient capital to support the economy and absorb losses. For this RBI decided that banks will not distribute dividends from the profits of the year ended March 31, 2020. This restriction shall be reassessed by the RBI based on the financial results of the banks for the quarter ended September 30, 2020.

Liquidity Coverage Ratio
Reserve Bank of India has decided to reduce the Liquidity Coverage Ratio from 100% to 80%, so that the banks will increase the liquidity in the market. This decision has been taken by RBI to reduce the burden on banks. Banks are permitted to maintain LCR as under:

From date of circular to September 30, 2020	80 per cent
Oct 1, 2020 to March 31, 2021	90 per cent
April 1, 2021 onwards	100 per cent

Written by
Mansi Sharma
Articled Clerk