RBI Announcements
- Rev repo down to 3.75%
- TLTRO, for NBFCs only, of 50K cr
- No dividends from banks
(Thread)
- Rev repo down to 3.75%
- TLTRO, for NBFCs only, of 50K cr
- No dividends from banks
(Thread)
Targeted Long Term Repo (TLTRO) for another 50K cr. Banks can borrow at repo if they lend the money straight to NBFC. Half of this money to small NBFCs. Only in their CP or Debentures (can't be loans).
Must be deployed within one month of the auction
Must be deployed within one month of the auction
Banks can park excess cash with RBI every day, the rate for that was 4%. Now it will be down to 3.75%. Reduces income for banks. Reverse repo rates also drive lower end of money market rates now, and overnight funds too will see lower returns.
10,000 cr. to NHB to refinance Housing fin cos. 25,000 cr. to NABARD, 15,000 cr. to SIDBI for onlending, basically RBI refinances. This is essentially where RBI is pushing money/lending indirectly to HFCs, regional banks and SMEs.
State can now borrow 60% more than earlier from RBI as a "ways and means advance" - an overdraft of sorts. Will have to be replaced by market borrowings by end September.
NPAs is strange. Essentially, it means that if you were almost an NPA as on March 1 (but not yet) and you got a moratorium, the 90 day "has not paid" period will not include the moratorium.
If you were 60 days overdue on March 1, you get another 30 days after May 31, to pay.
If you were 60 days overdue on March 1, you get another 30 days after May 31, to pay.
Banks have to provision 10% against moratorium accounts - over two quarters. Very negative for banks as provisioning will dent whatever little profits there are. But positive longer term if there are recoveries.
No dividend by any bank, for FY2020 till September. This is good to preserve bank capital somewhat.
Liquidity coverage ratio is brought down from 100% to 80%, and will be brought back up in a year.
Reduces demand for the highly liquid instruments like GSecs, from banks who would otherwise need to keep more money in those. Esp when they are getting short term deposits.
Reduces demand for the highly liquid instruments like GSecs, from banks who would otherwise need to keep more money in those. Esp when they are getting short term deposits.
NBFCs lendng to commercial real estate projects, will see less NPA recognition if the projects are delayed by a year from initial estimate.
The most significant is the TLTRO announcement - keeping it for NBFCs and 25,000 cr. for small NBFCs is a mega life saver. The smaller NBFCs will probably collectively need that much or less. Their borrowing rates were through the roof, we should thus expect some relief.
Currently, banks are using TLTRO to lend to high grade corporates. Now there's separate money for NBFCs. This is very good.
With so much money in the system, we should see banks cut lending rates at some point, but mostly it will be after the lockdown lifts. Income is coming down from all sources, provisions will rise, so banks will be worried.
When banks aren't growing their loan books, they don't want to compete. Rates won't come down easy. The only way forward is to push NBFCs (good) and reduce attractiveness of govt and state bonds, which are the least risky assets (not yet addressed).
The only stimulus this RBI announcement provides is the TLTRO direct to NBFCs. That will stabilize one market - but there's stress in others, and a general reluctance to start credit growth again, which can partly be addressed by RBI buying govt bonds from market, I feel.
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