RBI Monetary Policy Highlights: Repo rate cut on hold; Shaktikanta Das unveils liquidity, stimulus measures

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Updated: August 6, 2020 8:13:03 pm

RBI Monetary Policy Highlights: MPC has decided that the repo rate will remain unchanged amid the possibility of a high inflation. Shaktikanta Das announced Rs 10,000 crore at repo rate to NABARD and NHB to alleviate the liquidity crisis.

RBI Repo Rate Cut, RBI Interest Rate, Monetary Policy, RBI, Reserve Bank of India, shaktikanta das, repo rate, reverse repo rate, RBI live, RBI, Reserve Bank of India, shaktikanta das, repo rate, reverse repo rate, RBI liveMonetary policy August 2020: The RBI MPC has unanimously voted to maintain the status quo on policy rates.

RBI Monetary Policy August 2020 Highlights: RBI Governor Shaktikanta Das today announced that the repo rate will remain unchanged. The RBI MPC has unanimously voted to maintain the status quo on policy rates. Shaktikanta Das added that the MPC will remain watchful with respect to inflation dynamics to further use space available on the monetary side when appropriate. The RBI Governor also announced stimulus measures, which included additional liquidity of Rs 10,000 crore at repo rate to NABARD and NHB. “RBI’s move will definitely aid the reeling sector to tide over the liquidity crisis. The enhanced finance flow should see developers in need of last mile funding being able to complete their stalled projects,” said Niranjan Hiranandani, President – Assocham and Naredco. Among other measures, the RBI allowed stressed MSME borrowers to restructure debt if their loans were classified as ‘standard’ as on 1 March 2020. The MSME loan restructuring scheme was already in place, but, due to the coronavirus, the MSME pain has been aggravated, and this warrants additional support, Shaktikanta Das added. In an effort to mitigate the impact of COVID-19 on households, the RBI has increased the permissible loan to value ratio (LTV) for loans sanctioned against pledge of gold ornaments and jewellery for non-agricultural purposes from 75 per cent to 90 per cent till 31 March 2021.

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Highlights

    18:21 (IST)06 Aug 2020
    Regulatory and macro-prudential measures announced during the policy holds more importance than the rate decision

    With substantial easing provided on both rate and liquidity front, the focus has rightly shifted on regulatory measures. In the current times, the regulatory and macro-prudential measures announced during the policy holds more importance than the rate decision.- Navneet Munot, CIO, SBI Mutual Fund

    17:41 (IST)06 Aug 2020
    Cut delayed, not denied

    We maintain further scope for upto 50 bps cut in the current cycle, but with MPC’s desire for statistical reflection of durably low inflation, near-term cuts may be ruled out. Irrespective of the policy stance, amid current steepness the RBI’s yield curve management will continue in the form of outright OMO purchases and operation twist. - Madhavi Arora, Economist, Edelweiss

    16:50 (IST)06 Aug 2020
    MPC’s committed towards prime objective of inflation targeting

    The decision of ‘status quo’ stems from the fact that the near term inflation outlook remains uncertain owing to supply-side disruptions and cost-push factors and thus underscores MPC’s cautious stance and its commitment towards its prime objective of inflation targeting. Nonetheless, the MPC has conspicuously signalled further policy space by maintaining accommodative stance, thus giving reassurance to the markets of the requisite support as the inflation recedes in the second half. - Jyoti Vaswani, CIO, Future Generali India Life Insurance Co Ltd

    16:28 (IST)06 Aug 2020
    Fund of Rs 5,000 crores to NABARD would act as a booster shot

    Liquidity, restructuring & increased access to funds for MSMEs is the crux of today’s announcements made by the RBI Governor. The Reserve Bank of India has attempted to maintain a sagacious stance in liquidity infusion and shield the economic upliftment. The augmenting fund of Rs. 5000 crores to NABARD would act as a booster shot and improve liquidity for the small and medium-size NBFCs to ensure the unhindered flow of credit to the borrowers. - Prabhat Chaturvedi, CEO, Netafim Agricultural Financing Agency

    16:21 (IST)06 Aug 2020
    RBI says protracted spread of COVID-19 poses downside risk to economy

    The Reserve Bank of India on Thursday sounded a note of caution saying that protracted spread of the COVID-19 pandemic poses “downside risk” to the domestic economy which is expected to remain in the negative zone in the current fiscal. Read full story here

    16:20 (IST)06 Aug 2020
    RBI Governor Shaktikanta Das says headline inflation to remain elevated in Q2FY21

    Shaktikanta Das on Thursday said the country’s headline inflation is expected to remain elevated during the second quarter of the current fiscal year and may subside thereafter. Domestic food inflation remains elevated across most economies since the onset of the pandemic. Full story

    16:16 (IST)06 Aug 2020
    RBI's relief measures for entities who are under severe stress

    The resolution plan announced by the RBI is a big relief to the entities who are under severe stress due to pandemic situation. Harmonisation of capital charge for market risk to bode well for the corporate bond market. Additional liquidity facility provided to NABARD and NHB will further support credit push in the economy. The revision in the priority sector lending guidelines will ensure credit pickup in the areas where it is yet to see any traction. - Care Ratings

    16:12 (IST)06 Aug 2020
    All the resources shall not be exhausted upfront in uncertain times

    As observed rightly by the MPC, though there is need to be proactive but all the resources shall not be exhausted upfront in uncertain times such as the pandemic. The spread on interest rates on various categories has softened and there has also been evidence of trickle down of the rate cuts done previously, which justifies the decision to retain the rates.  - Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP 

    16:06 (IST)06 Aug 2020
    Restructuring will help many firms to deal with immediate working capital requirements

    The availability of additional finance window pending finalization of restructuring will help many corporates to deal with immediate working capital requirements. Rightly so, as this restructuring is aimed at providing relief to the accounts facing difficulties directly due to COVID-19, RBI has not made this one-time window available to the borrowing accounts being in default for more than 30 days as on March 1, 2020. - Ashish Pahariya, Associate Partner, DSK Legal

    16:05 (IST)06 Aug 2020
    RBI's move will prevent explosion of defaults

    RBI’s action to permit one-time restructuring will prevent the explosion of defaults and insolvency situations after the end of 6 months moratorium in August end. One-time restructuring which permits payment moratorium up to 2 years will give a longer time horizon to deal with the stress due to COVID 19. As the accounts will continue to be classified as a standard asset, this will not put pressure on the lenders provisioning requirements. - Ashish Pahariya, Associate Partner, DSK Legal

    16:00 (IST)06 Aug 2020
    RBI adds security on cheques

    Introduction of Positive Pay on cheques of Rs. 50,000 and above means that an added layer of security has been provided to the instrument. When you issue a high-value cheque, you can upload its details (such as front and back images) to the bank. When the bank receives the cheque from your beneficiary, it will verify the details uploaded by you. - Adhil Shetty, CEO, BankBazaar.com

    15:58 (IST)06 Aug 2020
    Availing moratorium leads your loan becoming bigger due to unpaid interest

    The five-month moratorium on loan payments ends on August 31. Since no extensions were announced by Governor Das, we can assume for now that loan payments need to restart from September 1. Availing the moratorium leads your loan to become bigger due to unpaid interest. Therefore, to erase the additional debt you’ve incurred, aim to pre-pay within the next 12 months about 120% of the EMIs you had to defer. - Adhil Shetty, CEO, BankBazaar.com

    15:53 (IST)06 Aug 2020
    RBI extends loan restructuring facility to companies; eases industry’s pain in tough times

    The restructuring will be allowed as per the prudential framework issued on June 7, 2019. The Reserve Bank of India (RBI) on Thursday announced a loan restructuring window for corporates following bankers and industry demand. The restructuring will be allowed as per the prudential framework issued on June 7, 2019. Read full story here

    15:49 (IST)06 Aug 2020
    MSME loan restructuring will help many companies that are still in distress

    At this juncture, it is definitely a wise move to fuel liquidity instead of a further rate cut. A sentiment upswing will follow among developers and buyers alike given the infusion of additional liquidity to NABARD and National Housing Bank. The MSME loan restructuring will help many companies that are still in distress due to the lockdown. - Ram Raheja, Director, S Raheja Realty

    15:33 (IST)06 Aug 2020
    Financials, banks, realty stocks gain up to 9% after RBI MPC keeps policy rates unchanged; auto stocks fall

    BSE Sensex surged over 500 points to top 38,200 points after Reserve Bank of India (RBI) Governor Shaktikanta Das announced to keep the repo rate and reverse repo rate unchanged at 4 per cent and 3.35 per cent, respectively. The Monetary Policy Committee decided unanimously to leave the repo rate at the existing level, and maintain an accommodative stance on policy. Read full story here

    15:25 (IST)06 Aug 2020
    Central bank extends MSME debt restructuring till March 31 next year

    The Reserve Bank of India (RBI) on Thursday extended the restructuring of MSME debt until March 31, 2021, “provided the borrower’s account was classified as standard with the lender as on March 1, 2020,” according to the statement by the central bank on developmental and regulatory policies to boost liquidity support for financial markets. “Recognising the need for continued support to MSMEs’ meaningful restructuring, it has been decided that, in respect of MSME borrowers facing stress on account of the economic fallout of the pandemic, lending institutions may restructure the debt under the existing framework,” RBI said adding that this restructuring shall be implemented by March 31, 2021. Full story

    15:21 (IST)06 Aug 2020
    RBI taps practical issues

    The signing of Inter Creditor Agreement (ICA) has always been controversial, as it is not a requirement which mandatorily binds all lenders. By specifically recognising that there could be lenders who do not sign an ICA and laying down that there has to be information sharing amongst all lenders (not just those who sign the ICA) and that such lenders to the ICA should resolve disputes themselves without a reference to RBI, the RBI seems to have taken note of the practical issues that an ICA continues to pose. - Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co.

    15:13 (IST)06 Aug 2020
    RBI relaxation seeks to ensure that a viable promoter, solely impacted on account of Covid pandemic, can continue his entrepreneurship

    With the sword of IBC being taken away, the RBI relaxation seeks to ensure that a viable promoter, solely impacted on account of Covid pandemic, can continue his entrepreneurship and provide the path of resolving the financial distress within a 2 year sunset. The time bond nature of resolution provides an objective criteria and ensures that this is not a problem which is merely pushed down the road - Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co.

    15:01 (IST)06 Aug 2020
    Borrowers get additional line of credit available to ensure that working capital needs are specifically taken care of

    When a Borrower was in default, there always existed a question of whether a lender by providing additional financing is actually putting in good money after bad. By clarifying that additional finance granted pre-implementation would enjoy a ‘standard’ classification, the borrowers have an additional line of credit available to ensure that working capital needs are specifically taken care of, without any risk of asset classification.- Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co.

    14:59 (IST)06 Aug 2020
    Benign rate scenario to remain conducive for bonds

    Status quo was on expected lines. Today’s inaction in no way suggests a U-turn in interest rate trajectory. The MPC members have been mindful of the recent spike in CPI inflation, hence the inaction seems valid. Growth worries remaining, the accommodative bias suggests scope for further easing as inflation recedes in the second half of Fy21. We expect benign rate scenario to remain conducive for bonds - Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak Mahindra Asset Management Company

    14:48 (IST)06 Aug 2020
    RBI's decision of loan restructuring is well timed

    Key provision of restructuring of loans to borrowers who were not in default on March 01 through recommendation of KV Kamath committee cannot have come sooner. The committee’s recommendations will enable ensuring prudent entry norms, clearly defined boundary conditions, specific binding 10 covenants, independent validation and strict post-implementation performance monitoring. Mention of outer limit of 2 years for the resolution and raising the provision limits to 20% for lenders not signing inter-creditor agreement will help speeden the resolution process and maintain the soundness of the banking system. - Dhiraj Relli, MD & CEO, HDFC Securities

    14:45 (IST)06 Aug 2020
    Previous reduction of 250 bps is achieving the expected outcome

    The outcome of the RBI’s meeting on Aug 06 was on expected lines. Rates have been left unchanged, as expected while the committee has maintained accommodative stance. It also noted that the previous reduction of 250 bps is achieving the expected outcome - Dhiraj Relli, MD & CEO, HDFC Securities

    14:40 (IST)06 Aug 2020
    Fiscal measures by RBI have started showing the positive outcomes

    Additional liquidity of Rs 5,000 crores announced to be infused in NHB will definitely aid the reeling sector to tide over the liquidity crisis. The enhanced finance flow should see developers in need of last mile funding being able to complete their stalled projects.This indicates that the fiscal measures by RBI have started showing the positive outcomes on the economy:  Niranjan Hiranandani President – Assocham and Naredco

    14:38 (IST)06 Aug 2020
    RBI grants breather to liquidity strapped industry

    Opening up the window for the restructuring of loans to companies, individuals, and MSME under mandated safeguards grants breather to the liquidity strapped industry. A flexible repayment scheme under the new resolution framework shall bring in the much-needed relief to resume operations smoothly. He additionally acknowledged the fact accorded by the RBI governor of maximum transmission of rate cut benefits percolating down the banking stream, which shall be reflected in easing the credit supply to meet the working capital needs of the industry across the board: Niranjan Hiranandani President – Assocham and Naredco

    14:35 (IST)06 Aug 2020
    RBI may look towards alternate measures

    With inflation expected to remain high owing to intermittent regional and local lockdowns leading to supply-side disruptions, the RBI has opted for status quo. The RBI’s dynamic, proactive, and balanced approach is in line with our expectations that the Central Bank will be looking at alternate measures such as forward guidance and maintain sufficient liquidity. - Rumki Majumdar, Economist, Deloitte India on RBI MPC Decisions.

    14:27 (IST)06 Aug 2020
    Rate cut unlikely in October meeting as well

    MPCs caution on uncertainty on inflation trajectory suggests that chances of further easing will henceforth remain a function clearly of evolution of supply side shocks. We see the next few readings still elevated near 6% and hence we do not see any rate easing in at least the October meeting. On a positive note the other regulatory and development measures announced today will go a long way in ensuring financial stability - Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank

    14:21 (IST)06 Aug 2020
    Possibility of another round of 25-50 bps rate cut over the next 6 months

    MPC’s decision to hold on to the existing rates appears to stem from its belief that the short term inflation outlook will be uncertain due to supply constraints and cost-push factors. Nevertheless, the MPC statement also highlights its concerns on the ongoing economic contraction in the current year and its intent to track the inflation trend closely so as to ensure timely action as and when appropriate. While the repo rates are almost close to the bottom, we believe there is a possibility of another round of 25-50 bps of a rate cut over the next 6 months. - Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research Ltd

    14:12 (IST)06 Aug 2020
    One should book profit and take money home and wait for better entry price points

    The dichotomy between the equity markets / stock prices and the underlying economic fundamentals continue to exist and the RBI governor also stated that globally there is evidence of a second wave of pandemic. This further adds to the view that one should book profit and take money home and wait for better entry price points. If one still wants to ride the current liquidity wave and does not want to sit out, then it will be prudent to take your capital home and keep the profit invested. -  Arjun Yash Mahajan, Head of Institutional Business, Reliance Securities.

    14:11 (IST)06 Aug 2020
    Loan resolution window for stressed corporate and MSME is a positive step

    For the banking and NBFC sector, RBI has provided a Loan resolution window for stressed corporate and MSME. This is positive for banks and we will stick with front line quality names in both PSU banks (State Bank of India) and Pvt. banks space (ICIC Bank, HDFC Bank, Kotak Bank). The RBI governor also stated that Loan to Value (LTV) to Gold and Jewellery companies is increased upto 90%, which bodes well for companies like Manappuram and Muthoot Finance, both not under our coverage currently. - Arjun Yash Mahajan, Head of Institutional Business, Reliance Securities.

    14:08 (IST)06 Aug 2020
    RBI extends support for various sectors

    The policy delivers support to a large range of sectors including NBFCs, HFCs, corporate debt market, debt MF, agriculture and backward districts (for priority sector loans). Increase in LTV for gold loans is another significant step. - Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers

    14:01 (IST)06 Aug 2020
    Acceleration of credit growth remains precondition for economic recovery

    MSME continues to see negative credit growth and YTD net allocation by banks to NBFCs remains negative. Acceleration of credit growth remains precondition for economic recovery and not much details are spelt out on addressing this issue. The Governor clearly indicated that space for further rate cuts remain as inflation is likely to soften in H2 FY21. We expect the RBI to cut repo rate by further 50 bps in FY21 but it may come once the lock-down restrictions are fully removed and inflation actually comes down - Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers

    13:55 (IST)06 Aug 2020
    Enough liquidity is ensured for the market

    The MPCs decision to keep rates unchanged was in line with our expectations though the market had some expectations. The RBI has already cut 115 bps this FY and inflation over last couple months was beyond the band expected. However due to the growth slowdown, the RBI may act in future policies and inflation is also expected to come down in H2 due to base effects. Enough liquidity is ensured for the market - Sudhakar Shanbhag, Chief Investment Officer, Kotak Mahindra Life Insurance Company Ltd. 

    13:46 (IST)06 Aug 2020
    RBI holding back some firepower for worse conditions

    The rationale behind the MPC deciding to keep rates on hold would be to preserve some firepower in case economic conditions worsen. Exhausting all ammunition at this point would have stretched monetary policy to the limits of its effectiveness and the MPC seems to be wary of letting that happen. One time restructuring of corporate loans announcement bode well for the equity markets. Most action is in 5y OIS which has got heavily paid by around 10-12 bps. - Abhishek Goenka, Founder and CEO, IFA Global

    13:40 (IST)06 Aug 2020
    No change in interest rate is not in line with expectations of India Inc

    Rationalisation of interest rates was imperative for businesses to thrive and RBI was expected to bow down to the pressure from industry and government. No change in interest rate is not in line with the expectations of India Inc and it is expected to lead to inflationary pressure in short-run further fueling the grim economic outlook. Households would keep investing in fixed return instruments like Bonds, and debentures that are expected to amplify the burden of debt on corporates. - Rajat Mohan, Senior Partner, AMRG & Associates

    13:34 (IST)06 Aug 2020
    RBI sticks to a pragmatic policy

    It is a pragmatic policy. While keeping the repo rate unchanged, the accommodative stance is maintained. Restructuring for MSME and sectors is a felt need and suggesting this would be with guardrails is again a prudent measure. - Padmaja Chunduru, MD & CEO, Indian Bank

    13:31 (IST)06 Aug 2020
    RBI's move will help NBFCs and housing finance companies to lend more money to homebuyers and generate demand back in market

    The announcement by RBI to facilitate the National Housing Bank with the liquidity of INR 5000 Cr is an encouraging step for the housing sector which has been under immense stress since the lockdown. This move will help NBFCs and housing finance companies to lend more money to homebuyers and generate demand back in the market. With unsold inventories available in major markets, homebuyers should consider buying homes now. The regulatory and developmental measures announced today will provide great impetus to the efforts of that all the authorities and government are taking for the Indian economy to regain its strength and return to normalcy - Farshid Cooper, MD, Spenta Corporation

    13:23 (IST)06 Aug 2020
    With low credit growth and rate cuts not resulting in credit transmission, realty sector remains in dismay

    With so much rate cuts already done, it was expected that RBI would take a pause and it's not surprising. We at SAI believe that the Industry collectively will benefit more from complete removal of lockdown as well as restrictions on public transport than from Monetary Policy or other interventions. With credit growth already at a low and rate cuts not resulting in credit transmission, the real estate sector hopes that the smooth functioning of the economy would be a priority for the Government. Real estate contributes a good chunk to the employment of labourers and it's important to keep the economy moving. State Governments should give up on risk aversion and ease lockdown completely by the end of August - Rahul Grover, CEO, SECCPL

    13:19 (IST)06 Aug 2020
    Industry welcomes RBI's move

    We welcome RBI MPC’s decision to leave the repo rate unchanged. RBI has taken an accommodative stand to balance growth and inflation. We, from the industry, will try to ensure growth despite the challenges posed by the pandemic. We will ensure the safety and well being of our employees and key stakeholders. We are confident that our country will emerge stronger from this crisis - Arjun Ranga, Managing Director, Cycle Pure Agarbathies

    13:12 (IST)06 Aug 2020
    Not cutting rates will maintain asset quality of stressed assets

    Not cutting the rates any further will protect the returns of savers and will not push borrowers, including banks and NBFCs, to lend any further and help in maintaining asset quality in stressed sectors. Maintaining an accommodative stance indicates the RBI will intervene to provide the right push and direction to growth when the economic activities start picking up in future. - Ravindra Sudhalkar, CEO at Reliance Home Finance

    13:11 (IST)06 Aug 2020
    RBI's today's move will give the housing sector a boost and benefit both developers and buyers

    The RBI’s Rs 5,000 crore support to National Housing Bank (NHB) will give the housing sector a boost and benefit both developers and buyers. With greater finance flow, the developers in need of small capital can now complete their stalled projects. Along with this, the window to enable MSME lenders to restructure loans will ease burden on genuine borrowers. Incentives to banks to lend to priority sector should also be transferred to NBFCs and HFCs, as affordable housing is also one of the priority sectors and a key industry for the economy. - Ravindra Sudhalkar, CEO at Reliance Home Finance

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