The Reserve Bank of India kept rates steady at record low levels as widely expected on Friday and reiterated that it will continue to support the recovering economy by ensuring ample rupee liquidity in the banking system.
The repo rate or RBI’s key lending rate was held at 4% while the reverse repo rate or its borrowing rate was left unchanged at 3.35%.
The RBI projected GDP growth to be at 10.5% for 2021-22.
After breaching upper tolerance threshold continuously, CPI inflation in December fell to 4.59 per cent, the first time in nine months that inflation came within the central bank’s comfort zone.
1. Extension of TLTRO scheme
The Targeted Long Term Repo Operations (TLTRO), a scheme worth Rs 1 trillion to provide liquidity support to various sectors and banks, has been extended to Non-Banking Financial Companies (NBFCs).
With a view to increasing the focus of liquidity measures on revival of activity in specific sectors that have both backward and forward linkages and having multiplier effects on growth, the RBI had announced the TLTRO on Tap Scheme on October 9, 2020 which is available up to March 31, 2021.
On a review of monetary and liquidity conditions, Das said, the RBI decided to restore cash reserve ratio (CRR) in two phases. In the first phase, the CRR will be raised to 3.5% from March 27 and subsequently to 4.0% from May 22.
To help banks tide over the disruption caused by the pandemic, the CRR of all banks was reduced by 100 basis points to 3.0 per cent of net demand and time liabilities (NDTL) effective from the reporting fortnight beginning March 28, 2020.
3. Extension of MSF relief facility
Aimed at providing comfort to banks on their liquidity needs, the Marginal Standing Facility (MSF) relaxation will be continued for six more months, i.e., up to September 30, 2021.
On March 27, 2020 banks were allowed to avail of funds under the MSF by dipping into the Statutory Liquidity Ratio (SLR) up to an additional one per cent of net demand and time liabilities (NDTL).
This was initially available up to June 30, 2020 and was later extended in phases up to March 31, 2021 .
4. Extension of SLR holdings in HTM category
On September 1, 2020, RBI had increased the limits under Held to Maturity (HTM) category from 19.5 per cent to 22 per cent of net demand and time liabilities (NDTL) in respect of statutory liquidity ratio (SLR) eligible securities acquired on or after September 1, 2020, up to March 31, 2021. This was made available up to March 31, 2022.
To provide certainty to the market participants in the context of the borrowing programme of the centre and states for 2021-22, the dispensation of enhanced HTM of 22 per cent has been extended till March 31, 2023 to include securities acquired between April 1, 2021 and March 31, 2022.
In general terms, banks are required to have a particular portion of their NDTL in the form of cash, gold or any other liquid assets. The ratio of these NDTL is defined as SLR. The central bank has the authority to hike this ratio up to 40% of NDTL.
5. Credit to MSMEs
Scheduled commercial banks will be allowed to deduct credit disbursed to new MSME borrowers from their NDTL for calculation of CRR.
New MSME borrowers would be those who have not availed any credit facilities from the banking system as on 1st January 2021.
This exemption will be available for exposures up to Rs 25 lakh per borrower for credit extended up to the fortnight ending Oct 1st, 2021, Das said.