RBI Monetary policy updates: Repo rate unchanged

As expected by most of the experts and analysts, the Reserve Bank of India (RBI) has today announced the monetary policy in which it has kept the repo rate unchanged at 4% and also decides to retain its ‘accommodative’ policy stance. RBI had kept the key policy rates unchanged for the fifth consecutive meeting. On the back of the COVID-19 pandemic, the central bank has cut policy rates to 4 per cent through two rate cuts of 75 bps in March’20 and 40 bps in May’20. Consequently, the reverse repo rate under the LAF remains unchanged at 3.35 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent. The present policy rates are as under.

Highlights of Statement on Developmental and Regulatory Policies

TLTRO on Tap Scheme – Extension of Deadline

RBI had announced the TLTRO on Tap Scheme on October 9, 2020 which was available up to March 31, 2021.On a review, it has now been decided to extend the TLTRO on Tap Scheme by a period of six months, i.e., till September 30, 2021.

Liquidity Facility for All India Financial Institutions

To support the continued flow of credit to the real economy in the aftermath of the COVID-19 pandemic, special refinance facilities for a total amount of ₹75,000 crore were provided during April-August 2020 to all India financial institutions (AIFIs) – the National Bank for Agriculture and Rural Development (NABARD); the Small Industries Development Bank of India (SIDBI); the National Housing Bank (NHB); and the EXIM Bank. it has been decided to extend fresh support of ₹50,000 crore to the AIFIs for new lending in 2021-22 (NABARD-Rs.25000 Crore, NHB –Rs.10000 crore, SIDBI-Rs.15000 Crore). All these three facilities will be available at the prevailing policy repo rate

Permitting banks to on-lend through NBFCs

It was decided in August 2019 to allow banks to classify lending to registered NBFCs (other than MFIs) as Priority Sector Lending (PSL) up to 5 per cent of a bank’s total PSL, for on-lending. It has been now decided to extend the PSL classification for lending by banks to NBFCs for ‘on-lending’ to the above sectors for six months, i.e. up to September 30, 2021.

RTGS and NEFT – Membership for entities other than banks

Membership to the RBI-operated Centralised Payment Systems (CPSs) – RTGS and NEFT – are so far limited to banks, with a few exceptions, such as specialised entities like clearing corporations and select development financial institutions. Now RTGS and NEFT facilities will be extended extends to digital payments intermediaries, beyond banks.

Loan limit enhanced for pledge/hypothecation of agricultural produce backed by NWRs/(e-NWRs)

It has been decided to enhance the loan limit from ₹50 lakh to ₹75 lakh per borrower against the pledge/hypothecation of agricultural produce backed by NWRs/(e-NWRs) issued by warehouses registered and regulated by WDRA. The Priority Sector loan limit backed by other Warehouse Receipts will continue to be ₹50 lakh per borrower. The circular in this regard will be issued separately.

Review of Way and Means Advances (WMA) limits for the State Governments/UTs

Ways & means advance (WMA) limit to the State Governments/UTs enhanced to ₹47,010 crore, up 46% from current limit of ₹32,225 crore.

Relaxation in the period of parking of External Commercial Borrowing (ECB) proceeds in term deposits

Under the extant ECB framework, ECB borrowers are allowed to place ECB proceeds in term deposits with AD Category-I banks in India for a maximum period of 12 months. It has been decided to relax the above stipulation as a one-time measure, with a view to provide relief. Accordingly, unutilised ECB proceeds drawn down on or before March 1, 2020 can be parked in term deposits with AD Category-I banks in India prospectively up to March 1, 2022. Guidelines in this regard will be issued separately