RBI Halts Bank Dividends, Injects Cash to Help Indian Borrowers

Daniel Fowler
April 17, 2020

TLTRO auction of Rs 25,000 crore will be conducted on Friday, according to RBI governor. "Today humanity is facing the trial of its time, as COVID-19 grips the world with its deadly embrace. Given the optimism around the economy coming back in phases and the support being extended through emergency COVID loans and other lines of credit, this will help all sectors, especially retail and MSMEs", says Padmaja Chunduru, MD and CEO, Indian Bank. "Banks have risen to the occasion by refilling ATMs regularly, despite logistical challenges", Mr. Das said.

The RBI governor further cited the International Monetary Fund's (IMF) global growth projections revealing that in 2020, the global economy is expected to plunge into the worst recession since "The Great Depression".

"India is among the handful of countries that is projected to cling on, somewhat tenuously, to positive growth rate of 1.9 per cent. India is expected to post a sharp turnaround & resume its pre-COVID, pre-slowdown trajectory by growing at 7.4% in 2020-21", he said in his address to media.

The RBI governor also stressed that the global loss suffered from the pandemic amounts to Dollars 9 trillion, far greater than the combined economies of Japan and Germany.

Commenting that there has been significant surplus liquidity in the banking system, Mr. Das said the fixed rate reverse repo has been reduced by 25 bps to 3.75% - to discourage banks to park surplus funds with RBI.

Meanwhile, RBI Governor Shaktikanta Das unveiled a slew of money market measures to protect the financial system from adverse fallout of coronavirus outbreak, while assuring the country that the central bank is proactively monitoring the evolving situation. The increased limit will be available till September 30, 2020.

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"Banks not to make any further dividend payout in view of financial difficulties arising from COVID-19", announces RBI.

He pointed out that the contraction in exports in March 2020 at 34.6 per cent, turned out to be much more severe than during the "Global Financial Crisis". They will not have to fear action from lending banks for a longer period, beyond the standard 90-day NPA recognition norm.

Rs 50,000-crore special finance facility to be provided to financial institutions such as Nabard, Sidbi, NHB.

The RBI Governor said, over the last three weeks, there have been a few data releases on domestic developments (including on factory output), but they are too disjointed to allow a comprehensive assessment of the state of the economy.

The regulator has also brought down the liquidity coverage ratio requirement for Commercial Banks from 100 per cent to 80 per cent with immediate effect. In the period ahead, inflation could recede even further, barring supply disruption shocks and may even settle well below the target of 4 per cent by the second half of 2020-21. Still, Das added that the RBI stood ready to act, and said the central bank would act again if needed.

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