RBI announces special refinance facilities for a total amount of 50000 crores to financial institutions

Today (17.04.2020) RBI Governor Shaktikanta Das in a media statement announced new measures to maintain adequate liquidity in system to facilitate bank credit flow and ease financial stress. The measures include conducting of targeted LTRO of ₹50,000 crores, cut reserve repo rate by 25 basis points and eased NPA rules for banks. Further, banks are prohibited from dividend payout from profit pertaining to the financial year 2019-20. “In view of the COVID-19 related economic shock, scheduled commercial banks and cooperative banks shall not make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020, until further instructions,” RBI governor Shaktikanta Das said in his statement. This restriction shall be reassessed by the Reserve Bank based on the financial results of banks for the quarter ending September 30, 2020.

“In order to channel liquidity to small and mid-sized corporates, including non-banking financial companies (NBFCs) and micro finance institutions (MFIs), that have been impacted by COVID-19 disruptions, it has been decided to conduct Targeted Long-Term Repo Operations (TLTRO) 2.0 at the policy repo rate for tenors up to three years for a total amount of up to ₹50,000 crores, to begin with, in tranches of appropriate sizes”, the Governor’s statement said.  The funds availed under TLTRO 2.0 (targeted long-term repo operations) shall be deployed in investment grade bonds, commercial paper (CPs) and non-convertible debentures (NCDs) of Non-Banking Financial Companies (NBFCs). The funds availed under this facility would have to be deployed within 30 working days from the date of the operation. At least 50 percent of the total funds availed shall be apportioned as given below:

(a) 10 per cent in securities/instruments issued by Micro Finance Institutions (MFIs);

(b) 15 per cent in securities/instruments issued by NBFCs with asset size of `500 crore and below; and

(c) 25 per cent in securities/instruments issued by NBFCs with assets size between `500 crores and `5,000 crores.

The asset size shall be determined as per the latest audited balance sheet of the investee institution/company.

 Investments made under this facility will be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio. Exposures under this facility will not be reckoned under the Large Exposure Framework (LEF). The first auction under TLTRO 2.0 will be conducted on April 23, 2020 for Rs.25000 Crore.

RBI has also increased WMA (Way and Means Advances) of states by 60% over and above the level as on March 31, 2020. The increased limit will be available till September 30, 2020. RBI said it will provide greater comfort to the states to undertake COVID-19 containment and mitigation efforts and enable them to better plan their market borrowings.