RBI unleashes second stimulus for coronavirus-infected economy, promises more

RBI Governor Shaktikanta Das also provides a special refinance facility of Rs 50,000 crore to NABARD, SIDBI, NHB

The Reserve Bank of India Friday unleashed the second round of incentives to boost the economy bruised by the COVID-19-related lockdown and indicated that it is open to lowering interest rates further as inflation appeared to be softening but the economic activity has come to a standstill.

In a fresh incentive for the banks to lend more, the RBI freed up more capital for the lenders by cutting reverse repo rate, the rate at which banks park their fund with RBI by 25 basis points to 3.75 per cent and promised to inject Rs 50,000 crore to address fund crunch faced by non-banking companies and pushed back the bad loan recognition period by banks by 90 more days to 180 days.

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RBI Governor Shaktikanta Das also announced a Rs 50,000 crore special finance facility to all-India financial institutions such as NABARD, SIDBI, NHB as they are not being able to raise fresh resources from the markets. He exempted banks from making dividend payments in view of financial difficulties arising from COVID-19.

“The disruptions caused by COVID-19 have, however, more severely impacted small and mid-sized corporates, including non-banking financial companies (NBFCs) and microfinance institutions (MFIs), in terms of access to liquidity,” Das said addressing an unscheduled press conference, his second since March 27.

Under the arrangement, NABARD will receive Rs 25,000 crore to enable refinancing of rural regional banks, cooperative banks and microfinance institutions, while SIDBI will get Rs 15,000 crore or on-lending and refinancing to scheduled commercial banks, non-banks and microfinance institutions. NHB to receive Rs 10,000 crore for supporting the housing finance companies.

The All India Financial Institutions raise resources from the market through specified instruments allowed by the RBI, in addition to relying on their internal sources. In view of the tightening of financial conditions in the wake of the COVID-19 pandemic, these institutions are facing difficulties in raising resources from the market.

The inflation is on a declining trajectory and could fall below the central bank's 4 per cent target by the second half of this fiscal amid challenges posed by COVID-19 pandemic.

On inflation, Das said the consumer price index-based retail inflation has fallen by 170 bps from its January 2020 peak.

"In the period ahead, inflation could even recede further, barring, of course, any supply-side disruptions and may even settle well below the target of 4 per cent by the second half of 2020-21," he said adding such an outlook would make policy space available to address the intensification of risks to growth and financial stability brought about by coronavirus outbreak.

The Governor said the macroeconomic landscape has deteriorated severely in some areas, but India is among the handful of countries that is projected to cling on tenuously to positive growth at 1.9%. In fact, this is the highest growth rate among the G-20 economies.

After announcing the whole lot of measures to soothe financial markets and the banks and borrowers, the Governor also assured that he will come with more measures to fight the virus as and when required.

He said, India still remains on a positive growth trajectory while the whole developed world is expected to slip into recession. Based on IMF projections, India is expected to cling on, tenuously, to a positive growth rate of 1.9 per cent.