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Factbox - RBI cuts rates, takes steps to counter economic impact of coronavirus

FILE PHOTO: Police stand guard as depositors of the Punjab and Maharashtra Co-operative Bank attend a protest over RBI curbs on the bank, outside a RBI office in Mumbai

MUMBAI (Reuters) - India's central bank slashed interest rates in an emergency move on Friday to counter the economic fallout from the coronavirus pandemic after the federal government locked down the country in order to slow the spread of infections across the region.

Prime Minister Narendra Modi has asked India's 1.3 billion people to stay indoors for three weeks in the biggest lockdown anywhere, shutting down Asia's third largest economy and leaving millions of economically vulnerable people without work.

The Reserve Bank of India lowered the benchmark repo rate by 75 basis points to 4.40% after a video conference meeting of its monetary policy committee (MPC), which was brought forward to respond to the crisis.

The RBI also announced several other steps to tackle the impact on various industries from the lockdown. Below are some of the key measures taken.


LIQUIDITY MANAGEMENT

1) TARGETED LONG TERM REPOS OPERATIONS (TLTRO)

RBI will conduct auctions of targeted term repos of up to three years tenor for a total of up to 1 trillion rupees at a floating rate linked to the policy repo rate.

Liquidity availed under the scheme by banks has to be deployed in investment grade corporate bonds, commercial paper, and non-convertible debentures over and above the outstanding level of their investments in these bonds as on March 27.

RBI said banks have to buy 50% of these incremental holdings from primary market issuances and the rest from the secondary market, including from mutual funds and non-banking finance companies.


2) CASH RESERVE RATIO (CRR)

The RBI as a one-time measure cut banks' cash reserve ratio or the mandated requirement of setting aside funds with the RBI as cash to 3% from 4% from March 28 and up to March 26, 2021.

The RBI also reduced the requirement for minimum daily CRR balance maintenance by banks to 80% from 90% from March 28 and up to June 26.

The cut in CRR would release primary rupee liquidity of 1.37 trillion rupees uniformly across the banking system, RBI said.


3) MARGINAL STANDING FACILITY (MSF)

Under the MSF facility, banks are permitted to borrow overnight against the bonds they hold as part of their statutory liquidity ratio. The RBI extended this limit to 3% of SLR from the existing 2% until June 30, to provide comfort to the banks.

The three measures together would infuse 3.74 trillion rupees into the system, the RBI said.


4) WIDENING MONETARY POLICY RATE CORRIDOR

The marginal standing facility rate would now stand at 4.65% with a spread of 25 bps over the repo rate while the reverse repo rate stands at 4%, taking the monetary policy rate corridor to 65 bps from the existing 50 bps.


REGULATION AND SUPERVISION

1) MORATORIUM ON TERM LOANS

The RBI permitted all financial institutions to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020.


2) DEFERMENT ON INTEREST ON WORKING CAPITAL FACILITIES

The RBI also allowed banks to defer payments in respect of working capital facilities sanctioned by them, in the form of cash credit or overdraft, for three months on payment of interest for all outstanding dues as on March 1, 2020.

The accumulated interest for the period will be paid after the expiry of the deferment period, the RBI said.


3) EASING OF WORKING CAPITAL FINANCING

RBI permitted banks to recalculate the drawing power for borrowers by reducing margins and/or by reassessing the working capital cycle and said this would not result in an asset classification downgrade.


4) DEFERMENT OF IMPLEMENTATION OF NET STABLE FUNDING RATIO

Banks in India were required to maintain NSFR of 100 per cent from April 1, 2020 as part of reforms recommended by the Basel Committee. It has now been decided to defer the implementation of NSFR by six months to Oct. 1, 2020.


5) DEFERMENT OF LAST TRANCHE OF CAPITAL CONSERVATION BUFFER

As per Basel standards, CCB was to be implemented in tranches of 0.625% and the transition to full CCB of 2.5% was set to be completed by March 31, 2019 which was deferred to March 31, 2020. It has been decided to further defer the implementation of the last tranche to Sept. 30, RBI said.


FINANCIAL MARKETS

1) PERMITTING BANKS TO DEAL IN OFFSHORE NDFS

RBI said it would permit banks in India which operate International Financial Services Centre (IFSC) Banking Units (IBUs) to participate in the non-deliverable forward market with effect from June 1, 2020.


(Compiled by Swati Bhat; Editing by Simon Cameron-Moore)