“…In the midst of death life persists, in the midst of untruth truth persists, in the midst of darkness light persists.”
By Mahatma Gandhi Ji in October, 1931.
1.1 GLOBAL GROWTH PROJECTION BY INTERNATIONAL MONETARY FUND( IMF)
- Global GDP Loss of around US Dollars 9 Trillion over 2020 and 2021.
- India projected growth at around 1.9 percent. (Highest Growth Rate among the G-20 Economies).
- For 2021, V- Shape Global GDP Recovery projected which is close to 9 percentage points.
- India GDP Growth projected at 7.4 percent in 2021-22.
1.2 Assessment by WORLD TRADE ORGANISATION( WTO)
- Global Merchandise Trade contracting by as much as 13-32 per cent in 2020.
- Global Financial Market will remain Volatile.
- Emerging Market Economies are grappling with capital outflows and volatile exchange rates.
- Crude oil prices remain in a state of flux.
1.3 Recent Data on Domestic Development
- As on April 10, 2020, acreage of paddy is up by 37 percent in comparison to last season.
- On April 15, 2020, India Meteorological Department (IMD) forecast a normal south west monsoon for the 2020 season, with rainfall expected to be 100 per cent of the long period average.
- Robust Growth of 21.3 percent in tractor sale up to Feb 2020.
- On April 9, 2020, IIP for February was released showing Industrial Output at Seven month high. Impact of COVID-19 is not captured in these prints.
- Sharp fall in Electricity Demand from 25-30 percent after the lockdown.
- Automobile production and sales, and port freight traffic declined sharply in March 2020.
- Manufacturing PMI for March 2020 at four month low.( Released on April 2, 2020.)
- Service PMI for March 2020 also going down due to Lower Export, New Domestic orders, etc.
- Fall in Export in March 2020 by 34.6 percent.
2.1.1 Targeted long term operations (TLTRO 2.0)
- Injected Rs 25,000 crore under TLTRO on April 17, 2020 to ease liquidity in banking system and De- Stress Financial Market.
- Committed to inject Rs 50,000 Crore under TLTRO 2.0 in tranches.
- Mandatory to use this fund within 1 month by bank for Investment in Investment Graded Bonds, Commercial papers, NCD of NBFCs with at least 50% of the amount availed should be invested in Small and Mid Sized NBFC and Micro finance institutions.
- This Investment should be classified as HTM Investment even in excess of 25% of total investment permitted to be included in HTM Portfolio. Further it will also not to be reckoned under Large Exposure Framework.
2.1.2 Refinancing facilities for All India Financial Institution’s( AIFI’s)
- Due to COVID-19, All AIFI’s facing issues in raising resources/ funds from the Market due to Lower Liquidity.
- RBI Will provide Special Refinance Facility for Rs 50,000 Crore to NABARD, SIDBI and National Housing Bank(NHB).
- Rs 25,000 crore to NABARD for refinancing regional rural banks (RRBs), cooperative banks and micro finance institutions.
- Rs 15,000 crore to SIDBI for on-lending/refinancing.
- Rs 10,000 crore to NHB for supporting housing finance companies (HFCs).
2.1.3 Fixed Rate Reverse Repo Rate
- As on April 15, 2020, RBI is having Rs 6.9 lakh crore under Reverse repo Operation.
- RBI reduced Fixed Rate Reverse Repo Rate under liquidity adjustment facility by 25 basis point from 4.0 percent to 3.75 percent.
- All other rates will remain unchanged.
- After this reduction in Fixed Rate Reverse Repo Rate, RBI suggest the banks to use this money for doing Investment and give loan to the productive sector of the economy.
- This will create liquidity in the economy.
2.1.4 Ways and Means for Advances for States
- RBI has raised the limit for short term credit that the Government can Borrow from Central Bank( RBI).
- On April 1, 2020, RBI Increased the Ways and Means Limit for States by 30 percent.
- On April 17, 2020 RBI Revised this Limit from 30 % to 60%.
- This Increased limit will be available till September 30, 2020. After September 30, 2020, the limit will come to 30%.
- This facility will provide Government some room to undertake short term Expenditure over and above its long term market borrowing.
- This Facility also enable Government to meet temporary mismatch between Revenue and Expenditure.
- Government will provide the Interest on this borrowed Amount. Interest rate will be the Repo Rate of that time.
2.2.1 Asset Classification & Provisioning.
- On March 27, 2020 the RBI had permitted lending institutions (LIs) to grant a moratorium of three months on payment of current dues falling between March 1 and May 31, 2020.
- As per BASEL Norms, all the Lending Institution need to Classify there Assets in the Books as Standard, Sub- Standard, Doubtful and Loss Assets.
- RBI given clarification to all the Lending Institution that if Account is Standard as on March 01, 2020 and the account is using moratorium benefit, then this moratorium period will not consider for NPA Classification Norms. In Simple words, if account is Standard and claiming Moratorium benefit, then this 90 days will not consider for NPA Classification.
- For NBFC, Which are required to Comply IndAS, will be guided by the Board by way of Guidelines and also by ICAI in recognition of impairments. In Simple words, NBFC have flexibility under this to consider such relief for their borrowers.
- Since there is Moratorium Period, the recoveries may get delay. And also there is probability that due to adverse effect of COVID-19, some of the Standard Asset will become NPA later on. And at that time, it may impact the Financial Statement of the Lending Institution Adversely. So for ensuring that banks maintain sufficient buffers and remain adequately provisioned to meet future challenge, the Lending Institution will maintain higher provision of 10% on all such accounts which will spread over in Two Quarters i.e. March 2020 and June 2020. These provisions can be adjusted later on against the provisioning requirements for actual slippages in such accounts.
- The above provisions shall not be reckoned for arriving at net NPAs till they are adjusted against the actual provisioning. Further, till such adjustments, these provisions shall not be netted from gross advances but shown separately in the balance sheet as appropriate.
2.2.2 Extension of Resolution timeline
- As per RBI’s Prudential framework of resolution for Stressed Asset, in case of default by any Large Accounts, all Scheduled Commercial Banks, All India Financial Institution , Systematically Important Non Deposit Taking NBFC( NBFC-ND-SI) and Deposit Taking NBFC (NBFC-D) are required to make additional provision of 20% if the resolution plan is not implemented with 210 days from the date of such default.
- Considering the Market Situation due to COVID-19, the RBI vide its Notification no DOR.No.BP.BC.62/21.04.048/2019-20 dated April 17, 2020 given the detailed instruction relating to resolution timelines which is as under:
- Accounts which are within the review period as on March 01, 2020 the period of 90 days(i.e. March 1 to May 31) shall be excluded for calculation of 30-days timeline for the Review Period.
- Accounts where review period was Expired but 180 days for resolution had not expired on March 01, 2020 the timeline for resolution shall get extended by 90 days from the date on which the 180-day period was originally set to expire.
2.2.3 Distribution of Dividend by Banks
- Due to heightened uncertainty caused by COVID-19, it is necessary for Banks to conserve capital to retain their capacity to support the economy and absorb losses.
- RBI Prohibited all the Banks for Declaring further Dividend payout from the profits pertaining the to financial year ending March 31, 2020.
- RBI will reassess this restriction based on the financial statements of the Banks for the quarter ending 30th September, 2020.
- This Restriction is not applicable on NBFC.
2.2.4 Liquidity Coverage Ratio (LCR)
- Reserve Bank has been proactively taking measures to address the systemic liquidity issues through a slew of monetary and market operations.
- To Ease the Liquidity position, the LCR requirement for scheduled commercial banks is being reduced from 100% to 80%.
- This will be restored back in two phases- 90% by October 01, 2020 and 100 by April 01, 2021.
2.2.5 NBFC Loan to Commercial Real Estate Projects
- Currently , if any Commercial Real Estate Project is financed by Scheduled Commercial bank and the date for commencement for commercial operations (DCCO) delayed for reason beyond the control of Promoters, can be extended by One Year over and above the One Year Extension permitted in the normal course without treating the same as restructuring.
- Project financed by NBFC are not covered under this provision till date.
- To Incentivize the NBFC, the RBI today decided to extend the similar treatment to project financed by NBFC also.
- This will Incentivize the NBFC as well as Real Estate Sector, whose project are financed by NBFC.