Shaktikanta Das Live: RBI Provides NPA Relief To Banks, Curbs Dividends
A screen displays an image of the Reserve Bank of India (RBI) Governor Shakitanka Das inside the Bombay Stock Exchange in Mumbai, India. (Photographer: Dhiraj Singh/Bloombergg)

Shaktikanta Das Live: RBI Provides NPA Relief To Banks, Curbs Dividends

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Key Highlights

Reserve Bank of India Governor Shaktikanta Das announced additional liquidity measures in a press briefing today, including a 25 basis point reduction in the reverse repo rate and an inflation outlook that “leaves room for policy action”.

Here are the other announcements:

  • Undertaking TLTRO-2.0 for amount of Rs 50,000 crore to begin with in tranches of appropriate sizes.
  • In respect of all accounts for which banks and financial institutions grant a moratorium, the 90-day NPA norm will exclude moratorium period.
  • Asset classification standstill for all accounts where moratorium granted.
  • Scheduled commercial banks and co-op banks will not make any further dividend payouts for profits from FY20 until further instructions.
  • To provide special refinance facilities of Rs 50,000 crore to NABARD, SIDBI, NHB to address sectoral credit needs.
  • LCR requirement for scheduled commercial banks is being brought down to 80 percent from 100 percent with immediate effect.
  • Date for commencement of commercial operations, in NBFCs loans to commercial realty projects, can be extended by 1 year.
  • Ways and means advances limit of states increased by 60 percent over and above limit as of March 31, 2020

M Govinda Rao On Increased WMA Limit

M Govinda Rao, Member of the 14th Finance Commission welcomed the RBI’s announcement on WMA, saying the increase in limit for states very important at this particular point of time.

  • Will protect states from going in for long term borrowing immediately
  • States are on the frontlines, spending on health care, migrant welfare etc.
  • If all states borrowed from the market immediately, we could have seen a spike in yields
  • Now states can phase out their borrowing needs & borrow at cheaper rates
  • Will have to be seen if the WMA limit hike is adequate; will depend on how much states will have to spend on Covid-19 fight
  • States' FRBM limit may need to be raised, over & above this temporary relief on the WMA limit
  • Have to be careful about how much additional money supply that's injected into the system

Experts React To RBI's Measures

Keki Mistry, Vice Chairman & CEO, HDFC

  • There are certain very good announcements particularly on the liquidity front
  • Additional Rs 50,000 crore TLTRO 2.0 will infuse liquidity in the system
  • Money provided to NABARD, SIDBI & NHB will ensure that NBFCs/HFCs get funding
  • Reverse repo rate cut gives banks more incentives to lend money
  • Larger NBFCs/HFCs were able to borrow under the LTRO window, smaller ones weren't
  • TLTRO 2.0 will ensure that smaller NBFCs/HFCs also get funding & remain liquid
  • Expect RBI's decision with respect to bank dividends to get reviewed in September
  • Banking system shareholders are largely retail; not getting dividends will reduce their ability to spend
  • Dividend decision designed to retain capital within the banks, but expect decision to be reviewed in September, if all goes well
  • Ever since the last RBI announcements, some degree of liquidity has been flowing into the system
  • Today's announcements will ensure that the smaller players will also get access to liquidity

Ramesh Iyer, MD, M&M Financial

  • Most of the requests made by NBFCs over a period have been met
  • Still waiting for clarity on the repayment moratorium from NBFCs to the banks
  • Liquidity support has been made available; that's great news for NBFCs
  • The liquidity injected via TLTRO 2.0 will be required to do business post May 3
  • Moratorium was sought to help with repayments to banks; liquidity support could be a decent alternative
  • Liquidity support will help NBFCs meet their commitments

Ashvin Parekh, Managing Partner, Ashvin Parekh Advisory Services

  • Bar on dividend payout gives the banking system additional funds to improve credit flow to the economy
  • Additional time for NPA resolution to reduce banks' provisioning requirement
  • Measures announced today interesting both quantitatively and for the instruments
  • Risk aversion by banks can't be wished away, to some extent justified
  • Would have liked a complete account of the transmission of earlier measures
  • Sufficient liquidity is being made available; need to see how banks respond with respect to sanctioning to NBFCs
  • NBFCs will have to hold dialogues with banks & convince them not to be risk averse in this situation
  • Since opening balance is not going to be considered as NPA, that also releases pressure on the capital

Saugata Bhattacharya, Chief Economist, Axis Bank

  • States' WMA limit hike key as markets will not be able to support the expected fiscal expansion from the states without serious consequences
  • Hence, RBI as lender of last resort, has to support
  • Expect the RBI to continue supporting the borrowing requirements of central and state governments
  • Relaxation of liquidity coverage ratio for banks from 100 percent to 80 percent helps banks which were at the margins of the SLR

Dhananjay Sinha, Director, Systematix Group

  • There's a continuity in the measures being announced by RBI
  • RBI aggressively addressing issues in the NBFC space to prevent repeat of earlier problems
  • RBI trying to reduce banks' risk aversion
  • Relaxations for real estate important, since the sector employs a large number of people
  • There's a risk of increase in NPAs after the 180-day period
  • Expect cash flows to improve after the lockdown ends; sufficient gap after that to ensure that borrowers repay

Mrityunjay Mahapatra, MD & CEO, Syndicate Bank

  • RBI has tried to balance the need for system liquidity & providing assistance to impacted businesses and the need to maintain banking system's health
  • Banks have been asked provide additional 10 percent till a review is made
  • Without the relaxation, 15 percent provision would've had to be made
  • There's some relaxation, but it's not as if there's full relief
  • Resolution timeline extension will also ease provisioning requirements
  • Restriction on dividends won't have much impact on banks' balance sheets
  • Disclosures of account details (standard, moratorium etc.) are market imperatives
  • Overall incentives for lending has gone up
  • Risk matrices of individual banks will play out differently
  • Expect banks to expand risk appetite

Concluding Remarks

The press release of NSO on April 13 showed CPI declined by 70 basis point to 5.9 percent for March, Das highlighted. “In other categories of CPI inflation, pressures remained firm,” he said.

Daily data on 22 essential items covered by the department of consumer affairs suggest that food prices have increased by 2.3 percent in April till April 13. However, onion prices, LPG and kerosene prices have also declined int he first fortnight of April.

“These early developments suggest that inflation is on a declining trajectory having fallen 170 basis points from its January 2020 peak. In the period ahead, inflation could recede even further. barring any supply side shocks, it may settle well below the target of 4 percent in the second half of FY21. Such an outlook could make policy space available to address the intensification of risks for growth and financial stability brought around by Covid-19. This space needs to be used effectively and in time.”

Date for commencement of commercial operations, in NBFCs loans to commercial realty projects, can be extended by 1 year, Das said.

Lowers LCR Requirement

  • LCR requirement for scheduled commercial banks is being brought down to 80 percent from 100 percent with immediate effect.
  • It will be brought back up gradually.
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