RBI announces repo rate cut, liquidity easing measures; economy requires stimuli, say analysts welcoming move

Reserve Bank of India (RBI) Governor Shaktikanta Das's announcement of rate cuts, forbearance on loans and liquidity easing measures were welcomed by analysts who said the economy requires stimuli in the present circumstances. Some of them also said that the RBI may have to deepen the rate cut if the COVID-19 crisis prolongs.

The RBI, which advanced a meeting of the rate setting panel by a week, announced a 0.75 per cent cut in its policy rates, infusion of Rs 3.76 lakh crore of liquidity through moves like a cut in cash reserve ratio and also allowed banks to not treat any term loans as NPAs for three months if there is no repayment.

Rajnish Kumar, Chairman, SBI and Chairman, IBA, said, the RBI policy announcements are "bold, decisive, compelling and with a humane touch in attenuating to the needs of the economy to fight through the pandemic. The large rate cut, the adjustment in capital conservation buffer, the moratorium on repayments and the bazooka of conventional CRR cut and unconventional liquidity measure of incentivising banks to support CP market all will help financial markets stabilise, lead to immediate rate transmission and address the credit needs of the real economy."

SS Mallikarjuna Rao, MD and CEO Punjab National Bank, "The 3-month moratorium on all term loan installments along with deferment of interest on working capital will help mitigate the debt servicing burden due to COVID-19 disruption and prevent transmission of financial stress among various sectors of the economy. Total liquidity injection of RS 3.74 lakh crore through TLTRO, CRR & MSF will address the liquidity stress in view of highly volatile financial markets. Considering the potential stress, the last tranche of 0.625 percent of CCB has also been deferred to 30 September 2020. However, challenges remain in terms of transmitting these measures to customers amid social distancing. Effective digital and electronic delivery to the last mile will remain the key issue."

Upasana Bharadwaj, senior economist, Kotak Mahindra Bank, “RBI, very correctly so, announced a comprehensive bazooka covering all aspects of the economy by taking measures system-wide both through liquidity, rates and regulatory forbearance (retail as well as for industry) and also targeted measures to manage the corporate bond markets.”

Radhika Rao, economist, DBS, said RBI has pulled out all stops with the aggressive rate cut and said the intention seems to be to reduce cost of funds while lowering incremental capital burden on banks. The central bank has also addressed banks' reticence in buying commercial paper by making it possible to hold them under the hold to maturity portfolio rather than mark to market, which affects their earnings, she said.

Navneet Muhnot, chief investment officer, SBI Mutual Fund, said, “While India has limited fiscal space, monetary policy continues to do the heavy lifting at a time when growth is at a severe risk in the near term," He said we need to explore unconventional measures on fiscal, administrative and regulatory fronts on the lines of lead taken by RBI.

Rajni Thakur, Economist, RBL Bank termed the RBI's measures as 'comprehensive'. "Coming on top of fiscal measures announced yesterday [26 March], it also signals coordinated fiscal and monetary policy support to handle this extra ordinary situation."

Himanish Chaudhuri, Partner, Deloitte said the announcement is welcome and has allayed a lot of concerns which the industry was having.

 RBI announces repo rate cut, liquidity easing measures; economy requires stimuli, say analysts welcoming move

File image of RBI governor Shaktikanta Das. News18

Arun Singh, Chief Economist, Dun and Bradstreet said, RBI's "robust measures were unanticipated and would restore the confidence of the market, restrict foreign capital outflows, both in the debt and equity market, and will help in arresting depreciation of rupee. The 75-bps cut in repo rate is in addition to 110 bps reduction in repo rate made by the RBI during 2019. The liquidity measures which will induce Rs 3.74 trillion in the system amounting to around 3.2 percent of GDP is a much-required impetus. However, banks might face difficulties to meet the capital adequacy norms which we expect will be further relaxed by the RBI during the short-term."

Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas, said, "the RBI has unleased a bazooka to deal with the economic pain and uncertainty prevailing in the wake of the COVID crisis. Crucially, in recognition of the inevitable stress in the next few months the RBI has permitted all lenders regulated by it to provide a moratorium on all instalments for term loans and interest payments on working capital loans-specifying that such a payment morotorium will not result in a adverse asset classification."

Chandrajit Banerji, director general, CII, welcomed the RBI moves but added that it expects the central bank to extend the repayment moratorium if the crisis prolongs.

Gautam Hari Singhania, CMD, Raymond Ltd, said the moves announced by RBI today are "decisive and a comprehensive package to ensure stability of financial markets making borrowing costs as low as possible with businesses around the country are closed and the economy is showing recessionary trends."

Sanjay Doshi, Partner, Deal Advisory-Financial Services, KPMG in India, said the RBI’s significant liquidity push now needs to be channelised to provide credit to industry. The onus is now on the financial institutions to ensure better credit support to the corporate However, given the challenging times many corporates will have significant pressure on their income stream. Banks will have a tough job in deciding the allocation of credit, he said.

Zarin Daruwala, CEO, India, Standard Chartered Bank, said, “The bold steps initiated by the Monetary Policy Committee should help financial markets tide over the current situation. The 100 bps Cash Reserve Ratio (CRR) cut along with the 75bps repo rate cut and additional liquidity under marginal standing facility (MSF), will free up precious term liquidity to augment the government’s fiscal efforts.”

People stand in queues at cash counters to deposit and withdraw money inside a bank in Chandigarh, India, November 10, 2016. REUTERS/Ajay Verma - RTX2SY9C

Representative image. Reuters

 

Joseph Thomas, Head of Research, Emkay Wealth Management said, "the relief given on the repayments in term loans is indeed a very timely action and would serve to remove lot of stress which a large number of borrowers may face in the coming days. This is a direct and targeted approach to the fluid situation in the face of an uncertain inflation and growth trajectory. This scaffolds the positive impact of the fiscal measures and strengthens our response to the adverse economic impact of the pandemic."

Piyush Baranwal, Senior Fund Manager Fixed Income, YES Asset Management (India), said the reverse repo rate of 4 percent will ensure that parking even low-cost deposits like savings bank account, net of CRR, has turned near unremunerative for most banks thus pushing them to lend to more productive segments of economy. "The CRR cut would further free up primary liquidity of 1.37 trillion and also help drive MCLR lower".

Nish Bhatt, Founder & CEO, Millwood Kane International, an investment consulting firm, said, adequate liquidity in the system will ensure a smooth flow of operations in the bond market with yields in a desirable range. "The regulatory action which is most novel, RBI allowed banks to provide moratorium for a period of 3 months which will help borrowers pay EMIs later and not default on their payments".

Alok Mittal, CEO & Co-founder, Indifi Technologies said, "This is a positive step for MSME borrowers. It is important that any such moratorium is granted as per the policy of the lending institution, because they have the best on-ground knowledge of the client's circumstances. Further, similar moratorium should be considered for the wholesale borrowing of the lending institutions, to ensure that this facility does not cause a liquidity mismatch."

Sathya Kalyanasundaram, Country Head and Managing Director, Experian India said, "the reduction in repo rate by 75 basis points to 4.4 percent brings financial relief to the common man and will help drive consumption. Additionally, the reduction in the Cash Reserve Ratio to 80 percent will infuse much needed liquidity into the system. These moves have been taken in good stead to battle uncertain times will help generate the right tailwinds for the economy.”

Udaya Kumar Hebbar, MD-CEO, CreditAccess Grameen said, the RBI's move will definitely provide a big relief to the rural low income segment of the society. "This comprehensive packaged announcement of moratoriums, liquidity enhancing measures and repo rate cut coupled with measures announced by FM on cash and food support to the low income households, will aid better the economic and credit conditions in the country.”

RK Gurumurthy, Head-Treasury, Lakshmi Vilas Bank, said, "possibly for the first time in the history of the Central Bank have we seen such a wide ranging and stellar economy-supporting measures and these will certainly have a salutary effect in addressing the macroeconomic risks from the pandemic COVID-19."

DK Srivastava, Chief Policy Advisor, EY India, said the "monetary measures will lead to additional liquidity of Rs3.74 lakh crore, amounting to nearly 2 percent of FY20 GDP, thereby facilitating economic recovery when normal economic activity resumes post the lockdown."

Gayathri Parthasarathy, Partner and National Head-Financial Services, KPMG in India said,It is a good decision and the time is right for RBI to intervene and announce these measures. "The steps to ease working capital pain, reduce liquidity costs and provide moratorium on term loans will alleviate stress across various sectors," she said.

Naveen Kulkarni, Chief Investment Officer, Axis Securities Limited, said, "the small finance banks will see significant liquidity, which is critical to tide through the current challenges. While the measures were much-needed, the markets will move now on how the Covid curve behaves in India. Longer shut downs will be detrimental to economy and the markets."

Vinay Pai-Head, Fixed Income, Equirus Capital, said, "by deferring provisions, providing moratorium on term loan and working capital till June 2020 and ensuring steps to further the same if need be required, has helped banks providing impetus to further lend with ample liquidity in system."

Suman Chowdhury, president, Acuite, domestic rating agency said, while the rate cut of 75 bps is indeed sharp and goes beyond the market expectations, the extent of the transmission by the banking system will have to be seen. The RBI came with a slew of well-prepared plan and targeted measures aimed at soothing the financial and credit markets and streamlining liquidity flow, said Kumaresh Ramakrishnan, CIO Fixed Income, PGIM India Mutual Fund. "Cumulatively these measures should release Rs 3.75 cr into the system which is already surplus with liquidity. These steps will lead to a decline in lending rates, declogging credit flow at least to the mid and higher rated entities for now and keep the money markets well-lubricated," he said.

Ravindra Sudhalkar, ED & CEO, Reliance Home Finance, said the RBI move is "a very progressive announcement but the market evolution post-announcement and related macro-economic situation that will shape up in the next quarter is a wait-and-watch as the GDP projection has been revised to 3.5. Overall impact on trade and economy will depend of reduction of the current pandemic and a good monsoon."

Anurag Mathur, Chief Executive Officer, Savills India said the "RBI has gone all-out, announcing a host of measures to revive growth, mitigate the negative ramifications on the economy, preserve the stability of the entire financial ecosystem, while obviously keeping in mind the inflation levels."

Bhavin Turakhia, CEO and Co-Founder, Zeta, said, the RBI's announcements will help "improve liquidity, reduce cost of funds, help middle class and small businesses. This will also help the economy and banking system continue with business operations and Zeta will continue to support the banks to function smoothly.We welcome the move & announcements made by RBI today that will help safeguard India’s economy from the impact of COVID 19. These announcements will help improve liquidity, reduce cost of funds, help middle class and small businesses. This will also help the economy and banking system continue with business operations and Zeta will continue to support the banks to function smoothly. We hope that we can provide additional support to banks in order to reinforce monetary transmission."

Umesh Revankar, MD and CEO, Shriram Transport Finance, said the "rate cut of 75 bps is in line with expectations and will aid to bring down the cost of borrowing. The CRR cut of 100bps will help in infusing the desired liquidity requirement in the system."

Rajiv Agarwal, MD and CEO Essar Ports, said, "the moratorium of 3-months for interest and principle payments along with a sharp cut in the CRR will ease the liquidity and help industry as well other segments of the economy. More steps might be needed once the government comes out with the much-needed stimulus package to overcome the economic crisis arising of COVID-19."

Sudhakar Shanbhag, Chief Investment Officer, Kotak Mahindra Life Insurance Company, said “the MPC has come with really big measures including rate cuts, CRR cut, Floating rate long-term repos for investment grade corporate bonds and CPs, forbearance on loans in terms of moratoriums and deferral of interest payments, capital conservation buffer deferment by 6 months, Offshore NDF market relaxations. This seems to be a comprehensive package and very necessary at this stage when growth will be under pressure.”

Mihir Vora, Director & Chief Investment Officer of Max Life Insurance, said the RBI announcement of a hefty rate cut, liquidity measures, moratorium and other flexibilities announced for banks and NBFCs are 'welcome and necessary in these extraordinary time'. "The steps will ease some of the burden on the financial system and will aid to keep credit flowing to the economy. LTRO in corporate bonds eases "crowding out" of the private sector to some extent, thus creating an environment where large fiscal stimulus be absorbed by market with limited impact on yields."

Abhimanyu Sofat, Head of Research, IIFL Securities, said, “RBI announced bold set of measures amounting to 3.2% of GDP to fight coronavirus will be well-taken by the market. Measures of no asset classification downgrade for 3 months on term loans, working capital loans moratorium will be a relief for the industry."

Vinay Pandit, Head-Institutional Equities, IndiaNivesh, "The rate cuts, EMI and working capital holiday (not waiver) is a positive for individuals and companies alike, though with forbearance of fixed costs for corporates. Will ease the pressure on cash flows in current times where cash flows (revenues slowing and expenses continuing) are impacted significantly, especially for MSME, small business and individuals who are impacted due to low visibility on income."

Manoj K Agarwal, Chief Executive Officer, Viviana Mall said, “By substantially reducing the repo rate and the reverse repo rate combined with relief to bond holdings to Bank is a huge and unprecedented measure in these uncertain times. Directing banks that they can permit a three-month moratorium on all term loans was really a necessary measure to ensure debt obligations are met without companies and individuals with terms loans being classified as a defaulter."

Kunal Varma, CBO and Co-Founder, MoneyTap, said “The 3-month EMI moratorium move from RBI basically means that the customers may be allowed to defer their immediate EMI payments, but come June, they will have to resume the payments. It is not a waiver, but only a shift in payment schedules. Also, like most other things, this moratorium doesn’t come free for consumers as well. Interest gets accrued during this period, and customers would need to pay this accrued interest along with their resumed payments from June onwards. That’s a small price to pay for getting this immediate relief."

Karan Kalia Founder, LegitQuest said, the "deferment of loan without any adverse asset classification is a welcome move and easing of working capital norms will bring big relief to small and medium-sized companies.”

Murthy Nagarajan, Head – Fixed Income, Tata Asset Management, "the Indian economy GDP growth rates is expected to come down to 2.5 percent – 3.5 percent , in the next financial year. With RBI following unconventional policies, we expected the 10 year G Sec to trade in the band of 5.5 percent-5.8 percent, in the coming months. The yield curve is expected to steepen, due to excess liquidity prevailing in the system. PSU corporate bonds should see spread compression in the coming months, as investors search for yields."

Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak Mahindra Asset Management Company, said the RBI announced a slew of measures to 'strengthen' the financial system in this hour of crisis. "The policy measures announced are big moves by the central bank to address concerns on liquidity and facilitating flow of credit in the economy. This will ensure that adequate liquidity is available in the system to tide over the prevailing crisis period."

Anirban Chakraborty, Managing Director & CEO, Tourism Finance Corporation of India, "the announcement brings much-needed immediate relief to the borrowers across sectors. We further expect additional special relief packages to be provided to the sectors worst affected such as aviation, tourism to name a few. With the government’s decision of a 21-day lockdown combined with timely measures undertaken by the Finance Ministry, we expect to tide over the current situation."

CMA B Mallikarjuna Gupta-Chief Taxologist, Logo Infosoft, said, "the RBI policy is making sure that there is enough liquidity in the market once the lockdown is lifted by way of reducing the reverse repo rate by 90 basis points. This will pump in cash required into the system and make the fund available for the MSMEs and helps the economy to be on track."

Updated Date: Mar 27, 2020 21:49:28 IST



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