Coronavirus: RBI may ease bad loan norms to boost COVID-19-ravaged economy

A moratorium on loan repayments by banks for another three months to August 31, easing of bad loan recognition norms to 180 days from the current 90 days and a one-time restructuring of loans as relief measures to help the COVID-19-ravaged economy could be some of the steps the RBI may announce when Governor Shaktikanta Das addresses the press at 10 am.

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The buzz is also that the Governor Shaktikanta Das may advance the monetary policy review, which is due on June 6. With the lockdown lifting in stages, the Governor is expected to make policy interest rates cheaper to help businesses invest and people spur their discretionary spending. The repo rate, or the rate at which RBI lends to banks, now stands at 4.40%. The street is expecting a further 50 basis points cut in the repo rate.

In the wake of banks parking more and more surplus fund with the RBI than lending to businesses in the risk-averse environment, the economists are also hoping the Governor could announce certain liquidity management tools that discourage banks from parking such a huge amount with the RBI. Standing Deposit Facility or SDF could be one of the measures that the RBI has been mulling over for a long time.

SDF is a collateral-free liquidity absorption mechanism that aims to absorb liquidity from the commercial banking system into the RBI without giving government securities in return to the banks.

At present, the RBI absorbs excess money within the banking system through the reverse repo mechanism but under this system, banks get government securities in return when they give excess cash to the RBI. An interest rate of reverse repo rate is also provided to banks.

The measure proposed by the Urjit Patel Committee report in 2014, has been included in the Finance Act of 2018.

The Governor’s meeting with a host of economists in the past week had given rise to the speculation that the policy rate cut could be in the offing. Das may also announce a deeper than 75 bps cut in the reverse repo to further discourage banks from parking their extra cashback with the RBI.