February 2021 – Page 72

Monetary policy: RBI keeps rates on hold, promises ample liquidity

February 5, 2021 root Banking & Finance

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“The cost of capital for companies is going to go up,” bankers said.

Despite worries on inflation, Reserve Bank of India (RBI) on Friday opted to leave policy rates unchanged even as it promised an accommodative stance for rates and, critically, liquidity. “The RBI stands committed to ensure the availability of ample liquidity in the system…As the government’s debt manager and banker, the Reserve Bank will ensure the orderly completion of the market borrowing programme in a non-disruptive manner,” RBI governor Shaktikanta Das observed. The central bank expects the economy to grow at 10.5% in 2021-22.

However, despite assurances from the central bank it would ensure the government’s large borrowing plan of Rs 12 lakh crore went through smoothly, the bond markets remained somewhat nervous with yields trending up.

Experts noted interest rates are headed up and that the trading range for the benchmark which has been ruling at 5.75-6% is expected to shift upwards. Moreover, the quantum of surplus liquidity could be smaller in 2021-22.

“The cost of capital for companies is going to go up,” bankers said.

Pranjul Bhandari, chief economist, HSBC, believes the aim of the central bank will be to ensure that financial conditions do not tighten too sharply over the foreseeable future.

Economists believe the policy repo rate will stay unchanged through 2021 and rise as growth picks up. “We expect the policy stance to shift to ‘neutral’ from ‘accommodative’ in Q3, the normalisation of the policy corridor to begin in Q4, and 50 bps worth of repo rate hikes in H1 2022,” Sonal Varma, chief economist at Nomura, wrote.

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MFIs: Uniform framework to create level playing field

February 5, 2021 root Banking & Finance

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The RBI has sent a very strong message that it is only the central bank which will frame guidelines for all the players in the industry, a state government has no role to play here

With the Reserve Bank of India (RBI) planing to come out with a consultative document harmonising the regulatory frameworks for various players in the microfinance space, lenders on Friday said a uniform framework is expected to create a “level playing field” for all and help the sector mitigate the risk of being regulated by any state law.

Significantly, the move to create the uniform framework came against the backdrop of the Assam Assembly passing the Assam Micro Finance Institutions (Regulation of Money Lending) Bill, 2020 in December for controlling operations of the MFIs. Following that, collection efficiencies of microfinance lenders fell sharply.

“Recently, the Reserve Bank has released a discussion paper on Revised Regulatory Framework for NBFCs – A Scale Based Approach. Taking into consideration the constantly evolving milieu in the financial sector, it is proposed to review the regulatory framework for non-banking financial company – micro finance institutions (NBFC-MFIs),” the RBI said.

“There is a case for having a framework which is uniformly applicable to all regulated lenders in the microfinance space including scheduled commercial banks, small finance banks and NBFC-investment and credit companies, rather than prescribing these guidelines for NBFC-MFIs alone. Accordingly, the RBI will come out with a consultative document harmonising the regulatory frameworks for various regulated lenders in the microfinance space in March 2021,” the central bank said.

“RBI’s step to harmonise the regulatory framework for the microfinance industry will deter any state government from passing a Bill to regulate microfinance players. The RBI has sent a very strong message that it is only the central bank which will frame guidelines for all the players in the industry, a state government has no role to play here,” industry sources told FE.

MFIN, the association for microfinance entities and the self-regulatory organization for NBFC-MFIs, said an uniform regulation across entities will help in sustainable growth of microfinance in India. “Considering the diversity of players in microfinance today, it is the need of the hour and MFIN has been proactively working on this through its code of responsible lending and also requesting RBI on the need for asset class-based regulation,” said CEO & director Alok Misra.

“Since over a decade has passed since the Malegam Committee on microfinance, a fresh and comprehensive review of the sector will certainly be a timely and relevant initiative towards harmonising the regulatory framework for the industry for various kinds of entities that can be followed uniformly across the country…, Bandhan Bank MD & CEO Chandra Shekhar Ghosh said.

Sa-Dhan executive director P Satish said hopefully, the harmonised regulation will have common lending norms for all lenders and will enhance the client protection.

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Reserve Bank of India – Tenders

February 5, 2021 root Tenders

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Estate Office, Mumbai Regional Office, Reserve Bank of India had invited e-tenders for “Design Supply, installation, testing and commissioning of X-Ray Baggage Scanner Systems for Bank’s Office Buildings at fort, Mumbai ” through MSTC portal (www.mstcecommerce.com/eprochome/rbi) on December 10, 2020.

2. The schedule of tender activities for the captioned work has been revised as under:

a.	Name of the work	:	Design Supply, installation, testing and commissioning of X-Ray Baggage Scanner Systems for Bank’s Office Buildings at fort, Mumbai
b.	E-tender Number	:	RBI/Mumbai/Estate/232/20-21/ET/324
c.	TOE start time(Opening of Part 1 – Technical Bid)	:	February 10, 2021 at 3.00 PM onwards
d.	Last date of Submission of EMD	:	February 10, 2021 till 12.00 PM
e.	Close Bid date and time	:	February 10, 2021 at 2.00 PM

3. All other terms and conditions remain same.

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RBI provides TLTRO support to NBFCs, lending to unbanked MSMEs

February 5, 2021 root Personal Finance

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RBI has extended the dispensation of enhanced HTM of 22% up to March 31, 2023, to include securities acquired between April 1, 2021 and March 31, 2022.

The Reserve Bank of India on Friday announced a slew of measures for better credit flow into the system. The regulator has proposed to provide funds to non-banking financial companies (NBFCs) from banks under the on-tap targeted long term repo operations (TLTRO) scheme for lending to some stressed sectors. Similarly, banks will be allowed to deduct credit disbursed to ‘new micro, small and medium enterprises (MSME) borrowers’ from their net demand and time liabilities (NDTL) for calculation of cash reserve ratio (CRR).

The central bank said ‘new MSME borrowers’ would be those who have not availed any credit facilities from the banking system as on January 1, 2021.

This exemption will be available for exposures up to Rs 25 lakh per borrower for credit extended up to the fortnight ending October 1, 2021. Details of the scheme would be spelt out in the circular.

In October last year, the RBI had announced on tap TLTRO scheme for banks. It had said to conduct on tap TLTRO with tenors of up to 3 years for a total amount of up to Rs 1 lakh crore at a floating rate linked to the policy repo rate. The scheme is available till March 31, 2021. NBFC body Finance Industry Development Council (FIDC) had earlier requested RBI to be included into TLTRO scheme.

The chairman of the country’s largest lender State Bank of India (SBI), Dinesh Kumar Khara, said that an extension of enhanced held to maturity limit (HTM limit), relaxation of funds availability under MSF, an extension of on tap TLTRO to NBFC, deduction of credit disbursed to ‘new MSME borrowers’ from their NDTL for calculation of the CRR will calibrate credit flow and liquidity management. RBI has extended the dispensation of enhanced HTM of 22% up to March 31, 2023, to include securities acquired between April 1, 2021 and March 31, 2022.

Similarly, S.S Mallikarjuna Rao, managing director (MD) and chief executive officer (CEO), Punjab National Bank (PNB), said that extending the on-tap TLTRO to NBFCs and incentivising lending to new MSME borrowers will support lending to these sectors.

Karthik Srinivasan, group head financial sector ratings, ICRA, said that inclusion of NBFCs under on tap TLTROs is likely to improve the credit flow to the NBFC sector in near term, however, an extension of time period beyond March 31, 2021, could have been considered.

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Phased withdrawal of CRR cut, lack of OMO hints disappoint markets

February 5, 2021 root Banking & Finance

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The Reserve Bank of India (RBI)’s decision to phase out the relief given to banks on mandated cash reserve ratio (CRR) levels and an absence of clarity on open market operations (OMOs) left the markets disappointed. Even as the central bank extended the held-to-maturity (HTM) hike of 2.5% for SLR-eligible securities acquired between September and March by another year, market participants warned that a rushed wind-down of this and other relaxations could spook markets, especially in view of the government’s expanded borrowing programme.

Soon after the announcement of the policy statement, the yield on the benchmark 10-year government security surged to 6.153% from the previous day’s close of 6.074%. It cooled off later during the session to close the day at 6.071%. The normalisation of CRR to 4% will drain approximately Rs 1.50 lakh crore of liquidity from the system, according to an estimate by State Bank of India(SBI)’s economic research wing.

RBI officials were quick to assuage the market’s concerns after the initial reaction, saying that the yield curve is a public good and the phasing out of the CRR reduction in two stages will only enable the central bank to carry out other liquidity operations. Deputy governor Michael Patra said that the dispensation is being kept in place for a full year already and it was set to be normalised on March 27, 2021. “But we went one step forward. We did not normalise it in one step, but in two steps so that 50% will happen on March 27 and 50% is pushed to May,” Patra said, adding, “The withdrawal of liquidity through CRR will be replenished with more durable liquidity in other forms, which are more market-friendly.”

Governor Shaktikanta Das observed that the market is at times prone to misjudging the RBI’s actions and reacting in haste, before arriving at a full assessment of them. He cited the example of a sharpening in yields after the January 11 announcement on variable reverse repo operations as one such hasty reaction.

For the time being, these reassurances may not be enough as most market experts see short-term yields hardening in the absence of more clarity on liquidity operations. Rahul Bajoria, chief India economist, Barclays, said that taken together, the moves on CRR and HTM securities will have a limited impact. “In the absence of explicit guidance on open market operations to support bond yields, we think the RBI will need to continue to fight yield volatility amid an expanded bond issuance programme,” he said.

Market participants harped on the need for caution while unwinding accommodative measures. The extension on HTM dispensation is welcome but will be more helpful if the unwind schedule isn’t too aggressive, said Suyash Choudhary, head – fixed income, IDFC Asset Management Company (AMC).

Choudhary added that given the way things stand, the RBI needs to mute, and not break, the linkage between the recalibration in the overnight rate and its exaggerated transmission to higher up the curve. “A hint around this was already given today when the governor referred to the CRR unwind opening up ‘space for a variety of market operations to inject additional liquidity’. Thus we fully expect unwind/absorption measures ahead around liquidity — CRR unwinds, term reverse repos, MSS (market stabilisation scheme) — to co-exist with twist and outright OMOs to ensure that the effect higher up the curve is blunted,” he said.

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SLR holdings in HTM category

February 5, 2021 root Notifications

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RBI/2020-21/94
DOR.No.MRG.BC.39/21.04.141/2020-21

February 5, 2021

All Commercial Banks

Madam/ Sir,

SLR holdings in HTM category

Please refer to paragraph 4 of Statement on Developmental and Regulatory Policies dated February 5, 2021 and our circular DoR.No.BP.BC.22/21.04.141/2020-21 dated October 12, 2020 on the above subject.

2. Banks are permitted to exceed the limit of 25 per cent of the total investments under Held to Maturity (HTM) category provided:

the excess comprises only of SLR securities; and
total SLR securities held under HTM category is not more than 19.5 per cent of Net Demand and Time Liabilities (NDTL) as on the last Friday of the second preceding fortnight.

3. With respect to the limit stated in paragraph 2(b) above, banks have been granted a special dispensation of enhanced HTM limit of 22 per cent of NDTL, for SLR securities acquired between September 1, 2020 and March 31, 2021, until March 31, 2022. The enhanced limit was required to be restored in a phased manner over three quarters beginning with the quarter ending June 30, 2022.

4. It has now been decided to extend the dispensation of enhanced HTM of 22 per cent to March 31, 2023 to include SLR securities acquired between April 1, 2021 and March 31, 2022. Thus, banks may exceed the limit specified in paragraph 2(b) above upto 22 per cent of NDTL (instead of 19.5 per cent of NDTL) till March 31, 2023, provided such excess is on account of SLR securities acquired between September 1, 2020 and March 31, 2022.

5. The schedule for restoring the enhanced HTM limit to 19.5 per cent of NDTL specified in paragraph 3 of the circular dated October 12, 2020 referred to above is accordingly modified. The enhanced HTM limit shall be restored to 19.5 percent in a phased manner, beginning from the quarter ending June 30, 2023, i.e. the excess SLR securities acquired by banks during the period September 1, 2020 to March 31, 2022 shall be progressively reduced from the HTM category such that the total SLR securities under the HTM category as a percentage of the NDTL does not exceed:

21.00 per cent as on June 30, 2023
20.00 per cent as on September 30, 2023
19.50 per cent as on December 31, 2023

6. As per extant instructions, banks may shift investments to/from HTM with the approval of the Board of Directors once a year and such shifting will normally be allowed at the beginning of the accounting year. However, in order to enable banks to shift their excess SLR securities from the HTM category to available for sale (AFS)/ held for trading (HFT) to comply with the instructions as indicated in paragraph 5 above, it has been decided to allow such shifting of the excess securities during the quarter in which the HTM ceiling is brought down. This would be in addition to the shifting permitted at the beginning of the accounting year.

Yours faithfully,

(Usha Janakiraman)
Chief General Manager

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Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR)

February 5, 2021 root Notifications

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RBI/2020-21/95
DOR.No.LRG.BC.40/21.04.098/2020-21

February 05, 2021

All Commercial Banks
(excluding Regional Rural Banks,
Local Area Banks and Payments Banks)

Dear Sir/Madam,

Basel III Framework on Liquidity Standards –
Net Stable Funding Ratio (NSFR)

Please refer to our circular DBR.BP.BC.No.106/21.04.098/2017-18 dated May 17, 2018 on Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR)-Final Guidelines (‘NSFR Guidelines’) and circular DOR.BP.BC.No.16/21.04.098/2020-21 dated September 29, 2020 deferring the implementation of the said guidelines till April 1, 2021.

2. In view of the ongoing stress on account of COVID-19, it has been decided to defer the implementation of NSFR guidelines by a further period of six months. Accordingly, the NSFR Guidelines shall come into effect from October 1, 2021.

Yours faithfully

(Usha Janakiraman)
Chief General Manager

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Reserve Bank of India – Press Releases

February 5, 2021 root Press Releases

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In terms of Government of India Notification F.No. 4(19)-W&M/2014 dated January 14, 2016 and RBI circular IDMD.CDD.No.1573/14.04.050/2015-16 dated January 14, 2016, the redemption price of Sovereign Gold Bond (SGB) is based on the simple average closing gold price of 999 purity [published by the India Bullion and Jewellers Association Ltd (IBJA)] of the week (Monday-Friday) preceding the date of redemption i.e. February 01-05, 2021.

Accordingly, the redemption price for the early redemption due on February 8, 2021 in respect of the bonds issued on February 8, 2016 shall be ₹4796/- per unit of SGB.

Ajit Prasad
Director

Press Release: 2020-2021/1060

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Reserve Bank of India – Notifications

February 5, 2021 root Notifications

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RBI/2020-21/92
DOR.No.Ret.BC.37/12.01.001/2020-21

February 05, 2021

All Scheduled Commercial Banks

Dear Sir / Madam

Credit to MSME Entrepreneurs

In terms of paragraph 5 of the Statement on Developmental and Regulatory Policies of February 5, 2021, Scheduled Commercial Banks will be allowed to deduct the amount equivalent to credit disbursed to ‘New MSME borrowers’ from their Net Demand and Time Liabilities (NDTL) for calculation of the Cash Reserve Ratio (CRR). For the purpose of this exemption, ‘New MSME borrowers’ shall be defined as those MSME borrowers who have not availed any credit facilities from the banking system as on January 1, 2021. This exemption will be available only up to ₹25 lakh per borrower disbursed up to the fortnight ending October 1, 2021, for a period of one year from the date of origination of the loan or the tenure of the loan, whichever is earlier.

2. Banks are required to report the exemption availed at the end of a fortnight, in Annex A to Form A as per Master Circular on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) dated July 1, 2015, under the item “Any other liabilities coming under the purview of zero prescription” at VIII.1. Proper fortnightly records of credit disbursed to new MSME borrowers/CRR exemption claimed, duly certified by the Chief Financial Officer (CFO) or an equivalent level officer, must be maintained by banks for supervisory review.

Yours faithfully

(Thomas Mathew)
Chief General Manager

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Basel III Capital Regulations- Review of transitional arrangements

February 5, 2021 root Notifications

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RBI/2020-21/93
DOR.CAP.BC.No.34/21.06.201/2020-21

February 5, 2021

All Commercial Banks
(Excluding Small Finance Banks, Payments Banks, RRBs and LABs)

Dear Sir/Madam,

Basel III Capital Regulations- Review of transitional arrangements

Please refer to circular DOR.BP.BC.No.15/21.06.201/2020-21 dated September 29, 2020 on ‘Basel III Capital Regulations- Review of transitional arrangements’.

2. In view of the continuing stress on account of COVID-19 and in order to aid in the recovery process, it has been decided to defer the implementation of the last tranche of 0.625 per cent of the Capital Conservation Buffer (CCB) from April 1, 2021 to October 1, 2021. Accordingly, the minimum capital conservation ratios in para 15.2.2 of Part D ‘Capital Conservation Buffer Framework’ of Master Circular, DBR.No.BP.BC.1/21.06.201/2015-16 dated July 1, 2015 on ‘Basel III Capital Regulations’, shall continue to apply till the CCB attains the level of 2.5 per cent on October 1, 2021.

3. The pre-specified trigger for loss absorption through conversion / write-down of Additional Tier 1 instruments (Perpetual Non-Convertible Preference Shares and Perpetual Debt Instruments), shall remain at 5.5 per cent of risk weighted assets (RWAs) and will rise to 6.125 per cent of RWAs from October 1, 2021.

Yours faithfully

(Usha Janakiraman)
Chief General Manager

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