The Reserve Bank of India’s (RBI) yet another attempt to persuade banks to bring pace in their lending activity to different industrial segments is expected to be a non-starter in post- COVID-19 situation. The central bank may have reduced the reverse repo rate by another 25 basis points (bps) to 3.75 per cent, disincentivising the banks to park their additional funds with the RBI, but it will be too much of optimism to expect banks’ lending to pick up because of this move. Though other measures announced by RBI Governor Shaktikanta Das to boost liquidity conditions, particularly for the Non-Banking Finance Companies (NBFCs), will prove to be a Big Bazooka with prudence and caution.

Dr. Joseph Thomas, Head of Research – Emkay Wealth Management said, “RBI has reaffirmed its commitment to support the economy and the markets and has announced an additional Rs.50,000 Crore TLTRO (Targeted Long-Term Repo Operation). This would be targeted at supporting corporate and smaller private entities. But the issue is that there no lending by banks nor any investment into sectors that require more support. Banks are parking with RBI on a daily basis, an amount close to Rs. 6 Lakh Crore. So whatever money they have with them and whatever they are getting from the RBI, the banks are giving back to the RBI instead of investing it or lending it. The reverse repo rate cut is to discourage thus reverse flow to the RBI. But is doubtful whether this flow can be stemmed easily. Banks are not lending or investing because they fear that under the current conditions they may be adversely impacted if they employ the money for investments or lending. Even three months back the approach of the banks was one of extreme caution”.

RBI’s relief package 2.0 announced on Friday is also expected to benefit the NBFCs and the real estate sector as it is intended at easing liquidity concern of these sectors in a big way.
Sundar Sanmukhani, Head of fundamental research, Choice broking said, “RBI’s latest announcements to infuse liquidity and expand bank credit are expected to provide big relief to the Non-Banking Financial Sector (NFBCs) as 50 per cent of the proposed TLTRO worth Rs 50,000 crore will be invested in small and mid-sized NBFCs and MFIs. The Central Bank has also relaxed NPA recognition norms for NBFCs”.

Dr. V K Vijayakumat at Geojit Financial Services said, “RBI has come out with announcements with far-reaching beneficial consequences to the financial system. Refinancing of Rs 50,000 crore to NABARD, SIDBI and NHB is another welcome move. The reclassification of NPA norms from 90 days to 180 days is a great relief to commercial banks. In brief, this is a big bazooka but with caution and prudence. Enhancement of Ways & Means Advances (WMA) to states by 60 per cent will be a relief to states stressed by the pandemic.”

Jaspal Bindra, Executive Chairman, Centrum Group said, “The RBI has shown pragmatism while announcing the second round of measures, aimed at maintaining liquidity and incentivizing credit flows. Additionally, the 90 day NPA norm won’t be applicable to loans where the moratorium is granted. This along with 1 year extension on loans given to the real estate sector will help preserve asset quality”.

Deepthi Mary Mathews, Economist, Geojit Financial Services, said, “In a span of 20 days, RBI announced the second round of liquidity boosting measures, with special focus on NBFCs and MFIs. TLTRO and reduction of reverse repo rate to 3.75 percent is expected to improve liquidity in the NBFC sector. Similarly, the loan given by the NBFCs to real estate to get similar benefits as given by commercial banks is a support to both the NBFC and real estate sector.