Important measures are taken by RBI in the recent past to preserve the financial stability of the country

In the Statement of Development and Regulatory Policies released on March 27, 2020, RBI released several regulatory measures to mitigate the burden of debt servicing brought about by disruptions on account of COVID-19 pandemic and to safeguard the continuity of viable businesses.

The package includes Rescheduling of Term Loans and Working Capital payments, recalculate the ‘drawing power’ of CC/OD by reducing the margins and/or by reassessing the working capital cycle, not to downgrade asset classification on account of the economic fallout from COVID-19, Reducing key policy rates to provide comfort to the banking system, injecting liquidity into the banking system by USD buy/sell and sell/buy swap auctions, open market operations etc. detailed below.

1. Rescheduling repayment of Term loans: All lending institutions including Commercial banks, regional rural banks, small finance banks, and local area banks, co-operative banks, all-India Financial Institutions, and NBFCs and HFCs in respect of all type of term loans (as well as agricultural term loans, retail and crop loans) are permitted to grant a moratorium of three months on payment of all installments falling due between March 1, 2020, and May 31, 2020. The residual tenor will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.
2. In respect of working capital facilities sanctioned in the form of cash credit/overdraft (“CC/OD”), lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020, up to May 31, 2020. The accumulated accrued interest shall be recovered immediately after the completion of this period. The lenders may recalculate the ‘drawing power’ by reducing the margins and/or by reassessing the working capital cycle. This relief shall be available in respect of all such changes effected up to May 31, 2020 and shall be contingent on the lending institutions satisfying themselves that the same is necessitated on account of the economic fallout from COVID-19. Further, accounts provided relief under these instructions shall be subject to subsequent supervisory review with regard to their justifiability on account of the economic fallout from COVID-19.
3. The moratorium /deferment/recalculation of the ‘drawing power’ provided to the borrower due to financial difficulty of the borrower shall not result in asset classification downgrade the account as Special Mention Account (SMA) and Non-Performing Asset (NPA), although same will not be treated as concession or change in terms and conditions of loan agreements.  The asset classification of the term loan shall be revised based on the revised due date and revised repayment schedule. For working capital facilities the SMA and the out of order status shall be evaluated considering the application of accumulated interest immediately after the completion of the deferment period as well as the revised terms of the working capital cycle.
4. The rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to Credit Information Companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries.
5. Wherever the exposure of a lending institution to a borrower is ₹ 5 crores or above as on March 1, 2020, the Bank shall develop an MIS on the reliefs provided to its borrowers which shall inter alia include borrower-wise and credit-facility wise information regarding the nature and amount of relief granted.

In the recent past, the Reserve Bank of India has taken several important measures on a daily basis to ease financial stress, build confidence and keep the financial system sound and functioning. The following are some of the important measures taken by the Reserve Bank to revive growth; and above all preserve financial stability.

• As announced in the Seventh Bi-monthly Monetary Policy Statement, 2019-20, on March 27, 2020, the Monetary Policy Committee (MPC) decided to reduce the policy Repo rate under the Liquidity Adjustment Facility (LAF) by 75 basis points from 5.15 percent to 4.40 percent with immediate effect.  With this, a cumulative reduction in the policy repo rate of 135 basis points in the recent past to revive the necessary growth, while keeping inflation within the target.
• In view of the exceptionally high volatility in domestic financial markets which brings in phases of liquidity stress and to provide comfort to the banking system, it has been decided to increase the accommodation under the marginal standing facility (MSF) from 2 percent of the statutory liquidity ratio (SLR) to 3 percent with immediate effect. This measure will be applicable up to June 30, 2020. This measure should provide comfort to the banking system by allowing it to avail an additional ₹ 1,37,000 crore of liquidity under the LAF window in times of stress at the reduced MSF rate announced in the MPC’s resolution dated March 27, 2020.
• RBI conducted on March 26 and April 23, 2019, two USD buy/sell swap auction of USD 5 billion each for injecting liquidity into the banking system amounting to ₹ 34,561 crores and ₹ 34,874 crores, respectively.
• The Central Bank conducted seven open market purchases, injecting ₹ 92,500 crores into the system.
• The Bank also steered four simultaneous purchase and sale of government securities on December 23 and 30, 2019 and January 6 and 23, 2020 under Open Market Operations what is also known as special OMOs or as operation twist to ensure better monetary policy transmission.
• During the period February 17 to March 18, 2020, Central bank conducted five long term repo operations (LTROs) for one-year and three-year tenors amounting to ₹ 1,25,000 crore of durable liquidity at fixed repo rate.
• The commercial banks are given relief by extending exemption on incremental credit disbursed by banks between January 31 – July 31, 2020, on retail loans for automobiles, residential housing and loans to micro, small and medium enterprises (MSMEs) from the maintenance of cash reserve ratio (CRR).
• RBI also conducted two 6-month US Dollar sell/buy swap auction providing dollar liquidity amounting to USD 2.71 billion.
• On March 26, 2020, RBI fine-tuning variable rate repo auction of Rs.50000/- for 8 days and variable repo auction of Rs.25000 on March 31.  Only standalone primary dealers (SPDs) allowed participating in the auction.
• The amount under the Standing Liquidity Facility (SLF) available for standalone primary dealers was enhanced from ₹ 2,800 crore to ₹ 10,000 crores on March 24, 2020, and this will be available till April 17, 2020.
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