Coronavirus economic impact: RBI slashes reverse repo rate by 25 bps

The reserve bank of India Governor, Shaktikanta Das addressed the media for the second time since the Narendra Modi government imposed a national lockdown. He announced a reduction in reverse repo rate by 25 basis points from 4 per cent earlier to 3.75 per cent now.

The RBI governor quoted, “The mission is to minimise the epidemiological damage in the country due to coronavirus, I want to convey the RBI’s resolve and the way forward.”

He further added that this is not the last of the announcements on financial support during the crisis, stating that the central bank will come up with responses in the future in the interest of the economy.

The governor also said that the contraction in exports in March at 34.6 per cent was much more severe than global financial crisis of 2008-09. He also added that the vehicle production and sales have declined sharply in March and so did the electricity consumption.

Additional measures announced by the RBI governor:

• 60% of ways and means advances allowed to states until September 30, 2020
• NPA classifications will exclude the three month moratorium period till May-end
• NBFCs allowed to grant relaxed NPA classification to their borrowers
• Banks will need to maintain additional provisioning of 10 per cent on standstill accounts
• Banks won’t announce dividends until further notice
• NBFCs’ loans to delayed commercial real estate projects can be extended by a year without restructuring
• Loans given by NBFCs to real estate companies to get similar benefit as given by scheduled commercial banks
• Liquidity management: Will undertake TLTRO 2.0 operations. LTRO of Rs 50,000 cr to begin with in many tranches for NBFCs
• 50% of the funds in TLTRO 2,0 is for small and medium-sized NBFCs
• A special Rs 50,000 crore refinance facility for Nabard (RS 25,000 crore), Sidbi (Rs 15,000 crore) and NHB (Rs 10,000 crore)
• LCR requirement brought down from 100% to 80% with immediate effect. LCR requirement to be restored to the previous level in a phased manner

The governor also highlighted these points:

• India is one of the few countries projected to hang on to – perhaps tenuously – 1.9% GDP growth, according to the IMF.
• India expected to stage a smart recovery to grow at pre-coronavirus pace of 7% in FY21, according to the IMF.
• Macroeconomic landscape has deteriorated since March 27, 2020.
• The global economy is going through the worst phase since the Great Depression.
• Every data on monsoon, sowing, fertilisers bode well for agri and rural outlook but situation is sombre in other industrial sectors.
• No downtime has been observed for internet or mobile banking.
• ATMs have worked at 91% capacity during this period.
• Since March 27, surplus liquidity has increased sharply in the banking system.
• The impact of Covid-19 has not been captured in recent IIP data.
• The RBI has taken several steps to ensure normal functioning of banks.

Earlier, on March 27, RBI governor made a historic pre-term MPC (Monetary Policy Committee) meeting whererin the repo rate was cut by a record 75 basis points. The repo rate was reduced to a 15-year low of 4.40 per cent and was also the steepest cut since October 2004.