Banks will have access to Rs 50,000 crore of cheap long-term credit to be used to lend to NBFCs and MFIs while Nabard, Sidbi and NHB will get a combined Rs 50,000 crore to refinance or on-lend.
Reserve Bank of India (RBI) on Friday sought to provide some Rs 1.2 lakh crore of liquidity to sectors that are short of funds, including shadow banks, MFIs, small businesses, the rural community and homebuyers, even as it moved to discourage risk-averse banks from parking their surpluses with it.
Banks will have access to Rs 50,000 crore of cheap long-term credit to be used to lend to NBFCs and MFIs while Nabard, Sidbi and NHB will get a combined Rs 50,000 crore to refinance or on-lend. RBI governor Shaktikanta Das was reassuring in his observations asserting the central bank would go the extra mile to ensure the financial system remained stable. “It is always open for RBI to step up this amount beyond Rs 50,000 crore… as is necessary to see that various segments of the market MFIs, NBFCs, remain well-lubricated in terms of liquidity,” Das said in an unscheduled address.
By dropping the reverse repo rate by 25 bps to 3.75%, the central bank hopes banks will start lending; credit off-take is running at around 6% y-o-y. The central bank also relaxed regulations relating to stressed assets and partially-stressed assets that would ease the pressure on banks’ balance sheets for a few months.
Bond markets were disappointed as the central bank made no mention of open market operations to buy bonds.
However, RBI hinted at a possible rate cut observing that inflation was trending below the projected trajectory and that there is ‘policy space” which needed to be used effectively and in time. Economists say this may not be enough.
“While the RBI’s measures are a nudge to banks to close this gap — between haves and have-nots — a bigger shove will be necessary to meaningfully reverse banks’ risk aversion, in our view,” Sonal Varma, chief economist at Nomura wrote.
Varma expects both conventional (75bp cumulative repo rate cuts) and unconventional policies to continue. “Monetary policy steps will move in tandem with fiscal policy, where we expect a second stimulus to be announced shortly, following the first tranche of ~0.8% of GDP,” she opined.
Of the special facility of Rs 50,000 crore, Nabard will receive Rs 25,000 crore to refinance regional rural banks and co-operative banks, Sidbi will on-lend or refinance MSMEs for an amount of Rs 15,000 core and NHB can support housing finance companies for Rs 10,000 crore.
The central bank was silent on a loan repayment moratorium for NBFCs but they can now defer the date for commencement for commercial operations with respect to loans to commercial real estate projects, delayed for reasons beyond the control of promoters, beyond an additional year, over and above the one-year extension permitted in the normal course; these will not be classified as restructured assets.