RBI takes steps to boost liquidity, eases bad loan rules

The RBI on Friday further eased bad-loan rules, froze dividend payment by lenders and pushed banks to lend more by cutting the reverse repo rate by 25 basis points, as it unveiled a second set of measures to support the economy hit hard by a coronavirus-led slowdown.

In his second televised address since the nationwide lockdown began from March 25, the Reserve Bank of India Governor Shaktikanta Das pledged to boost liquidity and expand bank credit.

In a measure that effectively meant that bad loans or non-performing asset classification will now happen after 180 days instead of the current policy of 90 days of payment default, the RBI announced an asset status freeze on loans that have been granted moratorium or deferment on interest/principal payment. This would cover the borrowers of both banks and NBFCs.

This means that the moratorium period will not lead to a spurt in NPAs in the system and will allow the borrowers across retail, small and medium-sized enterprises and corporates availing the moratorium to access additional funding from banks or non-banking financial companies.

Das, however, said lenders will have to make an additional provision of 10 per cent for those exposures under moratorium.

RBI cut reverse repurchase rate, a tool to control the money supply, to 3.75 per cent with immediate effect to encourage banks to deploy surplus funds within the system towards lending. The reverse repo rate cut will discourage banks from parking cash with the RBI and encourage them to lend to the economy.

It kept its benchmark repo rate, which was reduced late last month, unchanged at 4.40 per cent.

The RBI has now been decided to increase the ways and means advances limit of states by 60 per cent over and above the level as on March 31, 2020 and extended the increased limit until September 30.

It will inject Rs.50,000 crore in a new round of targeted long-term repo operations and asked banks to use the funds availed through this facility to benefit NBFCs and micro-finance institutions among others.

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