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Interesting Articles
Views on RBI announcement - Suman Chowdhury, Chief Analytical Officer at Acuité Ratings & Research
Posted On : 2020-04-17 12:29:03( TIMEZONE : IST )
"RBI's announcement on TLTRO 2.0 for an amount of Rs 50,000 Cr specifically for deployment in investment grade mid and small NBFCs is expected to address the emerging liquidity crisis in the NBFC and the HFC sector. Additionally, another Rs. 50,000 Cr refinance window will be opened from NABARD, SIDBI and NHB which is expected to partly meet the requirements of NBFC-MFIs. We had already put up a study on retail NBFCs sometime back where we had estimated that the top 11 companies in that segment will need refinancing to the extent of Rs. 10,000-20,000 Cr to sustain their operations and service their existing debt instruments. Clearly, the amount will be substantially higher for the whole NBFC and HFC sector and particularly in a scenario where they don't get the moratorium from banks, something on which clarity is yet to emerge. In that context, the steps on TLTROs and refinance from FIs will go a long way to meet these short term liquidity gaps in the shadow bank sector and ensure their sustainability and therefore, financial stability in the crisis period.
Another significant measure from RBI is the asset status "freeze" for the 3 month moratorium period covering the borrowers of both banks and NBFCs. In other words, necessary clarity has been given that the moratorium period will not lead to a spurt in NPAs in the system and importantly, will allow the borrowers across retail, SME and corporates availing the moratorium to access additional funding from banks or NBFCs. While this effectively means an extension of the NPA period from 90 days to 180 days, it has also prescribed an additional provision of 10% for those exposures under moratorium. Therefore, the banks and NBFCs also need to take higher provisioning charges for March and the June quarter, which will obviously hit their profitability further.
The other important measure has been the reduction of the reverse repo rate to 3.75% which will help to reduce the parking of excess liquidity of banks with RBI and nudge them to lend in this phase of credit aversion in the banking system."
