RBI Announces Measures To Help NBFCs, Banks; Shares Gain

On Friday, the Reserve Bank of India (RBI) announced measures to push liquidity in the Indian economy. Reverse repo cut was reduced to 3.75 percent from 4 percent earlier to help banks lend more.

Some other measures were also announced in favour of the lenders. Shares of NBFCs (non-banking financial companies) like Indiabulls Housing Finance, M&M Financial, Shriram Transport, L&T Holdings gained over 8 percent on RBI's briefing.

Bajaj Finserv, HDFC Bank and HDFC rose above 4 percent in trade on Friday.

The surge also comes after the Ministry of Home Affairs in its latest circular permits NBFCs, Housing Finance Companies, co-operative credit societies and micro-finance institutions to operate with bare minimum staff during the lockdown.

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Asset classification norms relaxed

For declaring accounts as NPAs (non-performing assets), a 90-days period relaxation was given. That is the period of the 3-month moratorium announced will be excluded from the 90-day classification norms of NPAs for those accounts which have availed the moratorium facility.

NBFCs have flexibility under current accounting standards to provide relief to borrowers.

There will be an asset classification standstill from 1 March to 31 May but banks will have to maintain higher provisions of 10 percent on standstill accounts. For the same period, adjustments on actual slippages can be made at a later stage.

"For large accounts under default, additional provisioning of 20 percent is required for not implementing resolution in 180 days," said RBI governor Shaktikanta Das.

NBFCs were also allowed relief on DCCO. Where the date of commencement of commercial operations (DCCO) is delayed for reasons beyond the control of promoters, it can be extended by one year without asset classification downgrade. NBFC loans to commercial real estate will also get the same relief.

LCR requirement

Liquidity Coverage Ratio requirement for scheduled commercial banks will be brought down from 100 percent to 80 percent with immediate effect. This shall be restored to 90 percent by October 2020 and 100 percent by April 2021.

TLTRO

RBI will conduct a second targeted long-term repo operation (TLTRO) for an initial aggregate amount of Rs 50,000 crore with special re-finance facilities to NABARD, SIDBI, and NHB.

At least 50 percent of the amount invested must go to mid and small-sized NBFCs and microfinance institutions (MFIs) to make sure these institutions are well funded and continue to provide their services. The investments must be made within one month of the RBI auction.

Dividend Payouts

Banks have been asked not to make dividend payout until further announcements.

Funding for States

The limit under Ways and Means Advances for states to avail short-term funds was increased to 60 percent of the existing limit. This will help states to avail more funds to fight the COVID-19 pandemic