KEY TAKEAWAYS FROM RBI'S MONETARY POLICY COMMITTEE MEETING HELD ON 6TH AUGUST 2020Since the outbreak of
Covid-19, RBI has been taking various steps to minimize its impact on the
Indian economy. In the March MPC meeting, RBI slashed repo rate by 75 bps to
4.40%. Thereafter, in May 2020, RBI reduced the repo rate further by 40 bps to
4%. In total, RBI has already slashed policy rate by a good 115 bps this year.However, considering
the higher inflation (more than 6% against the target of 4% in June 2020), this
time MPC decided to stick to accommodative stance and made the following announcements:1. Interest rate remained
unchanged: Considering the
inflation pressure on the food prices due to supply chain imbalance amid COVID and rising fuel (Petrol and Diesel) prices, repo rate was kept unchanged at 4%.
Accordingly, the Reverse Repo rate was kept at 3.35%. 2. Additional Special
liquidity Facility: Total amounts of ₹65,000
Crore was provided as special refinance facilities to NABARD (National Bank for Agriculture and Rural Development),
SIDBI (Small Industries Development Bank of India), NHB (National Housing Bank)
and EXIM Bank to support various sectors in meeting their funding
requirement of which:
a) NHB
received SLF of ₹5,000 Crore for a period of 1 year at repo rate to support housing
finance companies (HFCs). This was over and above ₹10,000 provided earlier.
b) NABARD received SLF of ₹5,000 Crore for a period of
1 year at repo rate (for refinancing NBFC-MFIs and other smaller NBFCs of asset
size of ₹500 Crore and less) in order to provide support agriculture and allied activities and
the rural non-farm sector. This was over
and above ₹25,000 Crore provided already in April 2020.
3. Implementation
of resolution plan on eligible corporate and personal Loan exposures:
With
the intent to facilitate revival of real sector activities and mitigate the
impact of Covid-19 on the ultimate borrowers, RBI directed the lenders to
implement resolution plan in respect of eligible corporate (without change in
ownership) and personal loan exposure. This facility will be available to the
COVID-19 stressed assets only.
Hence,
the moratorium on EMIs offered in the last six months (from 1st March to 31st August 2020) will expire at the end of August, 2020. Thereafter,
if the borrower will still not able to pay the EMIs then he may approach his
lender any time before 31st December 2020 and request for loan
restructuring under the said resolution plan.
Condition
for implementation of Resolution plan for Corporate Exposures:
a) Accounts
which were classified as ‘Standard Asset’ and not in default for more than 30
days with any lending Institution as on 1st March 2020.
b) Account continues to be remains standard till
the date of invocation.
c) Resolution
plan may be invoked anytime till 31st
December 2020
d) Resolution
plan shall be implemented within 180 days from the date of invocation.
e) RBI
will constitute an Expert Committee under the chairmanship of K V Kamath who
will make recommendation on the required financial parameter to be factored
into each resolution plan.
f) Lenders
may allow extension of the loan residual tenor for a maximum of 2 years with or
without moratorium
g) In
case lending under Consortium/Multiple banking -all receipt, payments and
disbursements shall be routed through an escrow account maintained with one of
those lenders.
h) Post-
resolution debt, lenders are also required to keep additional provision as
under:
i) Lender
Institution has to make 10% additional provision or
ii) Lender
Institution has to make 20 % additional provision if LI has not signing the
inter-creditor agreement (ICA) within 30 days from the date of invocation
Condition
for implementation of Resolution plan for personal loan exposure:
a) Resolution
plan may be invoked till 31st December, 2020.
b) Resolution
plan shall be implemented within 90 days from the date of invocation.
c) Resolution
plan may include conversion of any interest accrued
into another credit facility, rescheduling of payments, granting of moratorium subject to a maximum of 2
years.
d) Lenders
may allow extension of the loan residual tenor for not more than 2 years irrespective
whether borrower has opted for moratorium or not.
e) Lenders
are encouraged to strive for early invocation in eligible cases
Note:
The above benefit may vary from bank to bank and based on an assessment of income streams of the
borrower
4. Restructuring of MSME Debt until 31st March 2021
There
was already a restructuring framework in place for MSMEs that were in default
but ‘standard asset’ as on 1st January 2020 subject to the restructuring
being implemented upto 31st December 2020. However, considering the
continued stress in the MSME sector on the account of COVID-19 fallout, further
restructuring has been announced for MSME borrower subject to the following
conditions:
a) The
MSME account were classified as ‘standard asset ‘as on 1st March 2020.
The said account may be retained as such, whereas accounts which may have slipped into NPA category
between 2nd March 2020 and date of implementation may be upgraded as
‘standard asset’ as on the date of implementation of the restructuring plan and
this classification benefit will be only be available if restructuring is done
as per provisions of the Circular
b) The
restructuring of the account shall be implemented by 31st March
2021.
c) Aggregate
exposure (Fund based limit + Non Fund Based limit) of banks and NBFCs should
not exceed ₹25 Crore as on 1st March 2020.
d) On
the date of restructuring implementation, the Borrower account should be either
GST-registered or exempted from GST –registration which can be determined on
the basis of exemption limit obtained as on 1st March 2020.
e) Banks
are required to make an additional provision of 5% over and above the existing
provision
5. Adavances against Gold Ornamnets and Jewellery: Loan sanctioned by bank against pledge of gold
for non-agricultural purpose has been increase from 75% to 90% of the value of
gold. This relaxation shall be available till 31st March 2021.
6. Revised Priority Sector Lending (PSL) Guidelines:
With
a view to address the regional disparities in the priority sector credit flow
the PSL guidelines have been reviewed and following actions have been taken:
a) Higher weights will be given to the identified
districts having low credit flow
b) Lower
weights will be given to the identified districts having high credit flow
Further, the scope of
PSL has been expanded by the following decisions:
a) Start-up
will now be part of Priority Sector and as such will get loan on easy terms
b) Increasing
the limits for renewable energy, including solar power and compressed bio-gas
c) Increasing the lending targets to ‘Small and
Marginal Farmers’ and ‘ Weaker Section’
7. Other Measures (in brief)
a) E-Kuber: To enable banks to manage
liquidity and cash reserve requirements in a more flexible and discrete manner,
an automated mechanism e-kuber system will be introduced
b) Innovation Hub: In order to promote
and facilitate an environment that encourages innovation across financial
sector, an Innovation Hub will be set up by RBI in India
c) Positive Pay: To enhance safety of cheque payments of ₹50,000/-
and above and to reduce instances of fraud on account of tampering of cheque
leaves, a mechanism of positive pay will be introduced
d) Multiple Operating
Accounts:
Safeguards for opening of current account and CC/OD accounts for customers
availing credit facilities from multiple banks
e) Digital Payment: A scheme of offline
retail payments using card and mobile devices and online dispute resolution (ODR) for digital
payment will be introduced
KEY TAKEAWAYS FROM RBI'S MONETARY POLICY COMMITTEE MEETING HELD ON 6TH AUGUST 20202. Additional Special liquidity Facility: Total amounts of ₹65,000 Crore was provided as special refinance facilities to NABARD (National Bank for Agriculture and Rural Development), SIDBI (Small Industries Development Bank of India), NHB (National Housing Bank) and EXIM Bank to support various sectors in meeting their funding requirement of which:
a) NHB received SLF of ₹5,000 Crore for a period of 1 year at repo rate to support housing finance companies (HFCs). This was over and above ₹10,000 provided earlier.
b) NABARD received SLF of ₹5,000 Crore for a period of 1 year at repo rate (for refinancing NBFC-MFIs and other smaller NBFCs of asset size of ₹500 Crore and less) in order to provide support agriculture and allied activities and the rural non-farm sector. This was over and above ₹25,000 Crore provided already in April 2020.
3. Implementation of resolution plan on eligible corporate and personal Loan exposures:
With the intent to facilitate revival of real sector activities and mitigate the impact of Covid-19 on the ultimate borrowers, RBI directed the lenders to implement resolution plan in respect of eligible corporate (without change in ownership) and personal loan exposure. This facility will be available to the COVID-19 stressed assets only.
Hence, the moratorium on EMIs offered in the last six months (from 1st March to 31st August 2020) will expire at the end of August, 2020. Thereafter, if the borrower will still not able to pay the EMIs then he may approach his lender any time before 31st December 2020 and request for loan restructuring under the said resolution plan.
Condition for implementation of Resolution plan for Corporate Exposures:
a) Accounts
which were classified as ‘Standard Asset’ and not in default for more than 30
days with any lending Institution as on 1st March 2020.
b) Account continues to be remains standard till
the date of invocation.
c) Resolution
plan may be invoked anytime till 31st
December 2020
d) Resolution
plan shall be implemented within 180 days from the date of invocation.
e) RBI
will constitute an Expert Committee under the chairmanship of K V Kamath who
will make recommendation on the required financial parameter to be factored
into each resolution plan.
f) Lenders
may allow extension of the loan residual tenor for a maximum of 2 years with or
without moratorium
g) In
case lending under Consortium/Multiple banking -all receipt, payments and
disbursements shall be routed through an escrow account maintained with one of
those lenders.
h) Post-
resolution debt, lenders are also required to keep additional provision as
under:
i) Lender
Institution has to make 10% additional provision or
ii) Lender Institution has to make 20 % additional provision if LI has not signing the inter-creditor agreement (ICA) within 30 days from the date of invocation
Condition for implementation of Resolution plan for personal loan exposure:
a) Resolution
plan may be invoked till 31st December, 2020.
b) Resolution
plan shall be implemented within 90 days from the date of invocation.
c) Resolution plan may include conversion of any interest accrued into another credit facility, rescheduling of payments, granting of moratorium subject to a maximum of 2 years.
d) Lenders
may allow extension of the loan residual tenor for not more than 2 years irrespective
whether borrower has opted for moratorium or not.
e) Lenders
are encouraged to strive for early invocation in eligible cases
Note: The above benefit may vary from bank to bank and based on an assessment of income streams of the borrower
4. Restructuring of MSME Debt until 31st March 2021
There
was already a restructuring framework in place for MSMEs that were in default
but ‘standard asset’ as on 1st January 2020 subject to the restructuring
being implemented upto 31st December 2020. However, considering the
continued stress in the MSME sector on the account of COVID-19 fallout, further
restructuring has been announced for MSME borrower subject to the following
conditions:
a) The
MSME account were classified as ‘standard asset ‘as on 1st March 2020.
The said account may be retained as such, whereas accounts which may have slipped into NPA category
between 2nd March 2020 and date of implementation may be upgraded as
‘standard asset’ as on the date of implementation of the restructuring plan and
this classification benefit will be only be available if restructuring is done
as per provisions of the Circular
b) The
restructuring of the account shall be implemented by 31st March
2021.
c) Aggregate
exposure (Fund based limit + Non Fund Based limit) of banks and NBFCs should
not exceed ₹25 Crore as on 1st March 2020.
d) On
the date of restructuring implementation, the Borrower account should be either
GST-registered or exempted from GST –registration which can be determined on
the basis of exemption limit obtained as on 1st March 2020.
e) Banks
are required to make an additional provision of 5% over and above the existing
provision
5. Adavances against Gold Ornamnets and Jewellery: Loan sanctioned by bank against pledge of gold for non-agricultural purpose has been increase from 75% to 90% of the value of gold. This relaxation shall be available till 31st March 2021.
6. Revised Priority Sector Lending (PSL) Guidelines:
With a view to address the regional disparities in the priority sector credit flow the PSL guidelines have been reviewed and following actions have been taken:
a) Higher weights will be given to the identified districts having low credit flow
b) Lower weights will be given to the identified districts having high credit flow
Further, the scope of PSL has been expanded by the following decisions:
a) Start-up will now be part of Priority Sector and as such will get loan on easy terms
b) Increasing the limits for renewable energy, including solar power and compressed bio-gas
c) Increasing the lending targets to ‘Small and Marginal Farmers’ and ‘ Weaker Section’
7. Other Measures (in brief)
a) E-Kuber: To enable banks to manage liquidity and cash reserve requirements in a more flexible and discrete manner, an automated mechanism e-kuber system will be introduced
b) Innovation Hub: In order to promote and facilitate an environment that encourages innovation across financial sector, an Innovation Hub will be set up by RBI in India
c) Positive Pay: To enhance safety of cheque payments of ₹50,000/- and above and to reduce instances of fraud on account of tampering of cheque leaves, a mechanism of positive pay will be introduced
d) Multiple Operating Accounts: Safeguards for opening of current account and CC/OD accounts for customers availing credit facilities from multiple banks
e) Digital Payment: A scheme of offline retail payments using card and mobile devices and online dispute resolution (ODR) for digital payment will be introduced
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