RBI unlocks Rs 3.74 lakh-crore chest to push banks to lend

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Published: March 28, 2020 12:45:17 AM

Bankers lauded the liquidity bonanza as they expect credit demand to rise in the coming days as corporate revenues run dry and they look for funds to keep operations going.

Bankers said the measures will help ease credit flow at a time when cash flows are getting stretched across industries.Bankers said the measures will help ease credit flow at a time when cash flows are getting stretched across industries.

The Reserve Bank of India (RBI) on Friday unveiled a series of liquidity measures to unlock money to the tune of Rs 3.74 lakh crore, leaving banks with little excuse to not lend aggressively. The central bank slashed the cash reserve ratio (CRR) for the first time since February 2013 by a full percentage point to 3% and widened the policy rate corridor to 65 basis points (bps) from 50 bps, effectively making it less lucrative to park money with the RBI. All this is in addition to targeted long-term repo operations (TLTRO) worth Rs 1 lakh crore – all of which banks must deploy in investment-grade debt securities. Bankers said the measures will help ease credit flow at a time when cash flows are getting stretched across industries.

RBI governor Shaktikanta Das said: “The LAF corridor was reduced by 90 basis points to 4%, thus creating an asymmetrical corridor. The purpose of this measure relating to reverse repo is to make it relatively unattractive for banks to passively deposit funds with the Reserve Bank and instead to use these funds to on-lend to the productive sectors of the economy.”

Bankers lauded the liquidity bonanza as they expect credit demand to rise in the coming days as corporate revenues run dry and they look for funds to keep operations going. The March quarter has seen some amount of corporate demand for credit, said Murali Ramaswami, executive director, Bank of Baroda. “In the last one or two months, we have made fresh disbursements of Rs 40,000 crore. There is demand for credit and it has been coming from some companies doing some backward integration for a new project,” Ramaswami said, adding: “Liquidity will also be required now for salary payments. So, this is a very positive move by the RBI.” There is also demand for letters of credit (LCs) and commercial paper (CP) investments, he said.

Mrutyunjay Mahapatra, MD & CEO, Syndicate Bank, said that the prevailing situation of a country-wide lockdown might help reverse the trend of anaemic credit growth in the banking system. “Probably demand will return now for additional liquidity as the production cycle will not conclude because of these restrictions on goods and people as also process movement. So, companies have to get some money from somewhere to support funding because incomes will not come. Credit demand will pick up,” he said.

FY20 has been a bad year for credit growth, with incremental corporate credit growth being negative for much of the year. The non-food credit growth in the banking system for the fortnight ended March 13, 2020, stood at 6.07 % year-on-year (y-o-y), the lowest since May 2017.

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