The RBI Governor vide press release dated 22.05.2020 announced additional measures taken to curb the impact of COVID-19 on economy. While addressing the pandemic situation Shaktikanta Das, RBI Governor said that the “domestic economy too has been severely impacted by the two-month lockdown. The top 6 industrialized states that account for about 60 per cent of industrial output are largely in red or orange zones. Demand has collapsed, production has come down, taking a toll on fiscal revenues. Private consumption has been dealt a severe blow.” Further, the Governor said that agriculture and allied activities have provided a beacon of hope, amidst this encircling gloom. A ray of hope also comes from the forecast of a normal southwest monsoon in 2020 by the India Meteorological Department.

The Governor announced that the repo rate has been reduced by 40 basis points from 4.4% to 4.0%. Further, the marginal standing facility rate and Bank rate is reduced from 4.65% to 4.25%, and the reserve repo rate is reduced from 3.75% to 3.35%.

In view to ease the financial stress the RBI has further, extended the moratorium on term loan instalments for 3 months from 01.06.2020. Further relaxation provided are as follows, these measures will be applicable for a total period of six months i.e. from 01.03.2020 – 31.08.2020:

  • Three months deferment of interest on working capital facilities.
  • Easing of working capital financial requirements by reducing margins or reassessment of working capital cycle.
  • Exemption from being classified as ‘defaulter’ in supervisory reporting and reporting to credit information companies.
  • Extension of resolution timelines for stressed assets.
  • Asset classification standstill by excluding the moratorium period of 3 months etc. by lending institutions.

Further, the lending institutions are permitted to restore the margins for working capital to their original levels by 31.03.2021, similarly the measures pertaining to reassessment of working capital cycle is extended till 31.03.2021.

Further, the lending institutions are allowed to convert the accumulated interest on working capital facilities over the total deferment period of six months i.e. 01.03.2020 to 31.08.2020 into a funded interest term loan to be fully repaid during the current financial year, ending 31.03.2021.

The RBI has the maximum credit limit which banks can extend to specific corporate group from 25% to 30% of the bank’s eligible capital base. The increased limit is applicable till 30.06.2021. The said measures are taken to enable corporates meet their funding requirements from banks as they are currently facing difficulties in raising money from the markets.

Further, to ease the financial constraints on State Governments, the norms governing withdrawal from Consolidated Sinking Fund is being relaxed in order to enable states to repay their borrowings from the market which is due in 2020-2021. The Governor said that the relaxation is done to ensure that the depletion of the Fund balance is done prudently.

Further, to support Export and Import sector, the Governor announced that the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks to exporters has been increased from the existing one year to 15 months, for disbursements made up to 31.07.2020.  The Governor also announced that a line of credit of ₹15,000 crore to the EXIM (Export Import Bank of India) Bank, for financing, facilitating and promoting India’s foreign trade. The loan facility has been given for a period of 90 days, with a provision to extend it by one year. The loan is being given in order to enable the bank to meet its foreign currency resource requirements, especially in availing a US dollar swap facility.

The time limit of import payments against normal imports i.e. excluding import of gold, diamonds and precious stones, jewelry into India is extended from six months to twelve months from the date of shipment. It is applicable for imports done on or before 31.07.2020.

Further, to improve the functioning of market the refinance facility made available to Small Industries Development Bank vide announcement on 17.04.2020 extension of 90 days is further extended to 90 days. The Governor also announced that considering the difficulties faced by investors and their custodian’s rules for foreign portfolio investment under voluntary retention route is relaxed. As per the rules at least 75% of the allotted investment limit must be invested within three months, compliance of this time limit is revised and extended to six months.

The abovementioned measures are done in continuation to announcement made on 27.03.2020 and 17.04.2020 by RBI to smoothen the flow of finance and preserve stability in the amidst the unprecedent situation of COVID-19 pandemic.

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