RBI Announces Rs 50,000 Cr For NBFCs, Cut In Reverse Repo Rate, Amid Corona Scare

Days after the government extended the nation-wide lockdown till May 3, 2020, to stem the number of Coronavirus cases in India, the country's banking regulators have announced a second relief package, meant to support the economy by way of liquidity support. The RBI on April 17, 2020, reduced the reverse repo rate by 25 basis points to 3.75 per cent while announcing a Rs 50,000-crore relief package, tailored to serve the needs of India's non-banking financiers and housing finance companies.     

A separate refinance window of Rs 10,000 crore has been given to the National Housing Bank for extending refinance facility to the housing sector.

"HFCs will get additional Rs 10,000 crore at a lower rate from the RBI. Reverse repo rate has been reduced from 4% to 3.75%, to encourage banks to lend instead of parking funds with the RBI. NBFCs and the commercial real estate sector, both have been given huge relaxation of a one-year extension, over above one year already given in DCCO, without downgradation of account. This comes as a great aid in asset classification of NBFC loans to the commercial real estate sector," said Deo Shankar Tripathi, MD & CEO of Aadhar Housing Finance.

Also, standard classification status of loans as of March 1, 2020, will exclude the three-month moratorium period from March to May.  This means loans will not be classified as NPA during the period, in a big relief to borrowers and lenders.

"As per the latest data by the RBI, NBFCs' outstanding credit to the commercial real estate stood at Rs 1,29,359 crore as of September 2019. The relaxation of NPA classification norms and extension of one year for commencement of projects to real estate developers by NBFCs, will provide the much-needed relief to the sector," sayid Ramesh Nair, CEO and country head, JLL India.

These measures are exclusive and are over and above the support offered by the RBI on March 27, 2020.  

RBI's first move

Taking a cue from banking regulators from across the world, the RBI on March 27, 2020, reduced the repo rate by 75 basis points, amid a nation-wide lockdown in the aftermath of Coronavirus outbreak.  Responding to the outbreak, the Central bank reducedd its lending rate to 4.4% from the earlier 5.15%. This is the lowest level the repo rate has hit in the past 10 years. The repo rate, the rate at which the banking regulator lends money to scheduled banks in India, was lowered to 4.74% in April 20009, in the wake of the global financial crisis.

While lowering the reverse repo rate by 90 bps to 4%, the RBI also lowered the cash reserve ratio by 100 bps to 3%, to infuse more liquidity into the system.

The reverse repo rate is the rate at which the RBI borrows money from banks. Cash reserve ratio is the percentage of total deposits that banks must keep in their reserves, on which they earn no interest. Depending on the situation, this money is infused into the system to improve liquidity crunch.

Also Read: What is CRR, Repo Rate, Reverse Repo Rate?

Not only that, the RBI has also imposed a moratorium on principal and interest payments for three months on term loans, telling banks that non-payment should not be considered 'non-performing asset'.

"All commercial banks, co-operative banks, all-India financial institutions and NBFCs (including housing finance companies and micro-finance institutions) are being permitted to allow a moratorium of three months, on payment of instalments in respect of all term loans outstanding as on March 1, 2020," the RBI said. The move will not only help homebuyers but also assist slowdown and liquidity-starved builders.

Data available with PropTiger.com show that the real estate developers were sitting on an inventory stock consisting of over seven lakh unsold units in nine key markets, at a time when the builders in the country are under tremendous pressure owing to a liquidity crunch. In fact, during the festive season, which is covered in Q3 FY20, sales in India’s nine markets fell by 30 per cent year-on-year.

Also Read: 7.75 Lakh Housing Units Unsold In India’s Top 9 Markets: PropTiger Report

Recall here that the RBI Monetary Policy Committee (MPC) was scheduled to make an announcement on its seventh bi-monthly policy on April 3, but advanced the date in order to lend support to the economy, which, experts believe, might suffer tremendous loss, because of a lockdown to contain the spread of the COVID-19—as on March 28, India had 733 cases.  

“This decision and its advancement has been warranted by the destructive force of the Coronavirus. It is intended to (a) mitigate the negative effects of the virus; (b) revive growth; and above all, (c) preserve financial stability,” the RBI said in a statement.

The RBI also announced liquidity infusion of Rs 3.74 trillion in the banking system, increasing the total to a record high of Rs 6.5 trillion in the aftermath of the pandemic.

 “We are living through an extraordinary and unprecedented situation. Everything hinges on the depth of the COVID-19 outbreak, its spread and its duration. Clearly, a war effort has to be mounted and is being mounted to combat the virus, involving both conventional and unconventional measures in continuous battle-ready mode,” the RBI added.

Four of the six members of the MPC voted in favour of the cut, which would make, among many other things, home loans cheaper. The reduction would result in existing EMI becoming significantly low, since banks have linked their home loans with the repo rate starting October 2019.