Month: April 2021

Bankers and experts said the continuation of the accommodative stance and the status quo on rates in the first bi-monthly Monetary Policy of 2021-22 is on expected lines and provides reassurance amid the surge in Covid-19 cases.

Welcoming the policy announcements, Raj Kiran Rai G, Chairman, Indian Banks’ Association, and Managing Director and CEO, Union Bank of India, said: “Only deviation in the policy statement is that accommodative stance is not linked to specific time frame, but indicated its continuance to “sustain growth on a durable basis”. Considering the uncertainty around the second wave of the Covid pandemic, providing a definite time frame for the stance would not be appropriate.”

State Bank of India Chairman, Dinesh Kumar Khara said the RBI policy announcement is an acknowledgement and continuation of doing whatever it takes to maintain an orderly, seamless, and non-disruptive liquidity management policy to support debt management.

‘A bold step’

“Towards this end, an extension of enhanced HTM limit, relaxation of funds availability under MSF, an extension of on-tap TLTRO to NBFCs, deduction of credit disbursed to ‘New MSME borrowers’ from their NDTL for calculation of CRR, will calibrate credit flow and liquidity management. Allowing retail participation in the G-Sec market is a bold step towards the financialisation of a vast pool of domestic savings and could be a game-changer,” he noted.

‘Overall a good policy’

SS Mallikarjuna Rao, Managing Director and CEO, Punjab National Bank, said it is overall a good policy to support and nurture the economy amid the recent surge in second wave of infections.

“While liquidity has been ensured via TLTRO in case the demand picks up, the opportunity of onlending through NBFCs, enhancement of loan limit against warehouse receipts and liquidity facility for All Indian financial Institutions are all good moves to ensure continued availability of credit, which aid faster economic recovery,” he said.

AK Das, Managing Director and CEO, Bank of India, said the policy announcement represents a balanced approach to make economic revival deep rooted, ensure orderly development of the financial market, and keep price movement at manageable levels.

Abheek Barua, Chief Economist, HDFC Bank, said: “The focus of the policy was clearly on yield management and the announcement of the G-sec acquisition program (GSAP 1.0) is likely to stabilise and support long-term yields. Although the extension of tenures for the VRRR (variable rate reverse repo auctions) might lead to some hardening at the short-end of the curve.”

In a note, HSBC Global Research said the RBI has, in a novel step, provided some upfront assurance on the quantum of bond purchases in a bid to provide more certainty to bond markets.

“We believe inflation risks cannot be ignored, and the RBI will embark on a gradual exit once the current wave subsides and the vaccination drive reaches critical mass,” it further said.

The RBI has extended the deadline of the on-tap Targeted Long-Term Repo Operation (TLTRO) scheme by six months up to September 30,to increase the focus of its liquidity measures on revival of activity in specific sectors.

To nurture the revival of activity in sectors that have multiplier effects on growth, the Reserve Bank had announced on-tap TLTRO with tenors of up to three years for a total amount of up to ₹1-lakh crore at a floating rate linked to the policy repo rate in October 2020.

The liquidity availed by banks under the scheme is to be deployed in corporate bonds, commercial paper, and non-convertible debentures issued by the entities in five sectors (agriculture, agri-infrastructure, secured retail, micro, small and medium enterprises/ MSMEs, and drugs, pharmaceuticals and healthcare) over and above their investments in these instruments as on September 30, 2020.

Moreover, to enable banks to exploit the synergies between central bank liquidity under on-tap TLTRO scheme and the Emergency Credit Line Guarantee Scheme 2.0 (ECLGS 2.0) of the Central government, the RBI expanded the scope of the on-tap TLTRO in December 2020 to all stressed sectors identified by the Kamath Committee, in addition to the five sectors announced earlier in October 2020.

In February 2021, the RBI allowed lending by banks to NBFCs under the TLTRO on-tap scheme for incremental lending to specified stressed sectors.

The Reserve Bank of India (RBI), on Wednesday, said it will provide liquidity support aggregating ₹50,000 crore to All India Financial Institutions (AIFIs) – NABARD, NHB and SIDBI – for fresh lending.

The National Bank for Agriculture and Rural Development (NABARD) will get ₹25,000 crore; National Housing Bank/NHB (₹10,000 crore); and Small Industries Development Bank of India/SIDBI (₹15,000 crore)

The RBI had provided special refinance facilities of ₹75,000 crore to NABARD, SIDBI, NHB and Export-Import Bank of India during April-August 2020.

“To nurture the still nascent growth impulses, it is felt necessary to support continued flow of credit to the real economy.

“Accordingly, liquidity support of ₹50,000 crore for fresh lending during 2021-22 will be provided to AIFIs: ₹25,000 crore to NABARD; ₹10,000 crore to NHB; and ₹15,000 crore to SIDBI,” said the RBI in its Statement on Developmental and Regulatory Policies.

The Reserve Bank of India has proposed to enable regulated payment system operators to take direct membership in Central Payment Systems such as RTGS and NEFT.

“It is now proposed to enable non-bank payment system operators such as Prepaid Payment Instrument (PPI) issuers, card networks, White label ATM operators and Trade Receivables Discounting System (TReDS) platforms regulated by the Reserve Bank, to take direct membership in CPSs,” said RBI Governor Shaktikanta Das on Wednesday.

This facility is expected to minimise settlement risk in the financial system and enhance the reach of digital financial services to all user segments, he further said.

At present, membership to the RBI-operated Centralised Payment Systems –RTGS and NEFT – is currently limited to banks, with just a few exceptions such as specialised entities such as clearing corporations and select development financial institutions.

The Statement on Development and Regulatory Policies noted that over the last few years, the role of non-bank entities in the payment space has grown in importance and volume, as they have innovated by leveraging technology and offering customised solutions to users. The proposal is expected to reinforce this trend and encourage participation of non-banks across payment systems.

“These entities will, however, not be eligible for any liquidity facility from the Reserve Bank to facilitate settlement of their transactions in these CPSs,” said the RBI, adding that necessary instructions will be issued separately.

Meanwhile, to measure the extent of financial inclusion in the country, the RBI will construct and periodically publish a Financial Inclusion Index (FI Index). “The FI Index will be based on multiple parameters and shall reflect the broadening and deepening of financial inclusion in the country,” it said, adding that to begin with the FI Index will be published annually in July for the financial year ending previous March.