The six-member monetary policy committee (MPC) of the Reserve Bank of India, headed by Governor Shaktikant Das, on Thursday decided to keep repo rate unchanged, brimming hope of recovery for Covid-19 pandemic impacted India’s economy.
The MPC maintained status quo on the policy rates after delivering 115 basis points repo rate cuts since March.
The repo rate stands at 4%, and the reverse repo rate at 3.35%. Various economists had expected the central bank to overlook a 6%-plus inflation rate and bat for reviving growth with a 25 basis points repo rate.
Das made a total of seven announcements including a Rs 10,000 crore in additional liquidity facility for NBFCs and HFCs, restructuring of corporate and individual loans and tweaks to MSME restructuring, among others.
The RBI plans to allow lenders to restructure some loans. A new resolution window would created for corporate and individual borrowers to ease Covid 19 impact on the banking sector.
The apex bank has decided to provide a window under the June 7th Prudential Framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures – without change in ownership – as well as personal loans, while classifying such exposures as standard assets, subject to specified conditions.
It has constituted an expert committee, which will make recommendations to the RBI on the required financial parameters, along with the sector specific benchmark ranges for such parameters, to be factored into resolution plans.
The governor also announced Rs 10,000 crore in additional liquidity facility for NBFCs and HFCs.
A special liquidity facility of Rs 10,000 crore will be provided at the policy repo rate, which will include Rs 5,000 crore facility via National Housing Bank (NHB) in a bid to shield the housing sector from liquidity disruptions.
RBI also announced Rs 5,000 crore facility via National Bank for Agriculture and Rural Development (NABARD) to lower the stress being faced by smaller non-bank finance companies (NBFCs) and micro-finance institutions .
The stressed MSME borrowers will be made eligible for restructuring their debt under the existing framework, provided their accounts with the concerned lender were classified as standard as on March 1, 2020. This restructuring will have to be implemented by March 31.
At present, loans sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes could not exceed 75% of the value of gold ornaments and jewellery. Das on Thursday said that the RBI has decided to increase the permissible loan to value ratio (LTV) for such loans to 90%.
For priority sector lending, an incentive framework will now be put in place for banks to address the regional disparities in the flow of priority sector credit.
The MPC felt that risks to food inflation remains, even as it expects favourable food inflation to emerge going ahead.
Meanwhile, the economic indicators showed signs of a tapering off in the revival process in July after a strong recovery in May and June.
The stock market cheered the RBI announcements, with the BSE Sensex climbing 479 points or 1.27% to 38,142.33. The NSE Nifty50 was trading near 10,250 level. Major bank stocks gained up to 2%.
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