RBI announces Statement on Developmental and Regulatory Policies

The Developmental and Regulatory Policies announced today by RBI sets out various developmental measures including liquidity and regulatory measures. The highlights of the statements are as under.

 Liquidity Measures:  Extension of Deadline for On Tap TLTRO Scheme:  RBI has announced the extension of the On Tap TLTRO scheme further by a period of three months, i.e., till December 31, 2021. RBI had announced the On Tap TLTRO scheme on October 9, 2020, for five sectors which were available up to March 31, 2021, and later extended up to September 30, 2021.

Marginal Standing Facility (MSF) – Extension of Relaxation:  RBI announced the continuance of MSF relaxation for a further period of three months, i.e., up to December 31, 2021. This facility, which was initially available up to June 30, 2020, was later extended in phases up to March 31, 2021, and again for a further period of six months till September 30, 2021, providing comfort to banks on their liquidity requirements and also to enable them to meet their Liquidity Coverage Ratio (LCR) requirements.

 Review of Guidelines of LIBOR Transition: RBI regulated entities to cease entering into new contracts that use LIBOR as a reference rate and instead adopt any Alternative Reference Rate (ARR) as soon as practicable and in any event by December 31, 2021. In this background, RBI has decided to amend the guidelines related to export credit in foreign currency and restructuring of derivative contracts as detailed below.

(i) Export Credit in Foreign Currency – Benchmark Rate

As per revised guidelines, banks are permitted   Authorized dealers to extend export credit using any other widely accepted Alternative Reference Rate in the currency concerned.  Earlier, Pre-shipment Credit in Foreign Currency (PCFC) to exporters for financing the purchase, processing, manufacturing, or packing of goods prior to shipment at LIBOR / EURO-LIBOR / EURIBOR related rates of interest.

(ii) Prudential Norms for Off-balance Sheet Exposures of Banks – Restructuring of Derivative Contracts

In view of the impending change in reference rate from LIBOR is a “force majeure” event, banks are being advised that change in reference rate from LIBOR / LIBOR-related benchmarks to an Alternative Reference Rate will not be treated as restructuring. Hitherto, a change in any of the parameters of the original contract is treated as restructuring, and the resultant change in the mark-to-market value of the contract on the date of restructuring is required to be cash-settled.

Deferral of Deadline for Achievement of Financial Parameters under Resolution Framework 1.0:

In view of the adverse effect of the second wave of COVID-19 on the revival of businesses, and the difficulty it may pose in meeting the operational parameters, RBI has decided to defer the target date for meeting the specified thresholds in respect of the above parameters to October 1, 2022. The resolution plans implemented under the Resolution Framework for COVID-19 related stress announced on August 6, 2020, are required to meet the sector-specific thresholds notified in respect of five financial parameters, four of which are related to the operational performance of the borrowing entity, viz. Total Debt to EBIDTA ratio (Total Debt/EBIDTA), Current Ratio, Debt Service Coverage Ratio, and Average Debt Service Coverage Ratio, by March 31, 2022.

Source: RBI press release

Related Post: Key policy rates unchanged