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Monetary Policy Committee Led By RBI Governor Shaktikanta Das Announces Repo Rate Cut to 4.4%

Professor of Financial Economics and Part-time Value Investor, Transfin.
Mar 27, 2020 2:12 PM 6 min read
Editorial

RBI Governor Shaktikanta Das announces repo rate cut to 4.4%. RBI takes giant steps to preserve financial stability amidst coronavirus pandemic and lockdown in India. RBI allows deferment of all loan repayments until June 30th. G20 nations to inject $5trn to combat coronavirus crisis.

 

 

INDIA

RBI takes giant steps to preserve financial stability amidst coronavirus pandemic and lockdown. Moody's slashes India's 2020 GDP growth forecast to 2.5%. 

Big Bang Announcements

Desperate times warrant massive measures. The RBI today announced giant steps to safeguard the economy amidst the coronavirus pandemic, which has led to a 21-day nationwide lockdown.

 

What You Need to Know

The RBI Monetary Policy Committee (MPC) voted 4-2 in favour of cutting the repo rate cut by 75 basis points (bps) to 4.4% from 5.15% earlier (the two dissenters supported a 50 bps cut). The reverse repo rate, meanwhile, has been cut by 90 bps to 4%.

 

Other major announcements (read RBI's official statement here) include:

  • Several measures taken to infuse liquidity of about ₹3.74Lcr ($49.6bn) into the financial system
  • Liquidity injection via reduction in Cash Reserve Ratio (CRR) by 100 bps to 3%
  • RBI to undertake Targeted Longer-Term Refinancing Operations (TLTRO) to infuse ₹1Lcr ($13.2bn) in banks. This TLTRO will have to be deployed by banks in investment grade bonds, commercial paper and non-convertible debentures. This is expected to help the lending markets and reduce bond spreads
  • Accommodation under Marginal Standing Facility to be increased from 2% from Statutory Liquidity Ratio (SLR) to 3% with immediate effect till June 30th
  • Moratorium of three months on repayment of all term loans and on working cap interest payments, subject to individual bank policies
  • MPC decides to continue with accommodative stance for as long as necessary
  • MPC for the first time advances meeting date scheduled for April 1st-3rd and refrains from giving next meeting date in the wake of evolving situation

Here are the highlights and first comments on the RBI’s announcements. [Arkvega]

 

Setback

Moody's Investor Service has more than halved India's 2020 growth forecast to 2.5%. This comes three weeks after its previous downgrade to 5.3%. The 21-day lockdown, the ratings agency said, would result in sharp loss in incomes and further weigh on domestic demand and pace of recovery.

 

Moody's maintained its estimate of 5.8% growth for India in 2021. [ET Indicators]

 

UNITED AGAINST COVID-19

G20 nations to inject $5trn to combat coronavirus crisis.

We Shall Overcome

Leaders of G20 nations have pledged to inject $5trn into the global economy "to counteract the social, economic and financial impacts of the pandemic" amid forecasts of a deep recession. 

 

"Collective G20 action will amplify its impact, ensure coherence, and harness synergies. The magnitude and scope of this response will get the global economy back on its feet, and set a strong basis for the protection of jobs and the recovery of growth," read a joint statement issued after the G20’s first ever virtual summit, chaired by Saudi Arabia. [Livemint]

 

Zomato announces measures to support its partner restaurants and delivery partners. 

Sharing Joy

Amid a nationwide lockdown in India, restaurant discovery and food delivery platform Zomato has announced a slew of measures to support its partner restaurants and delivery partners.

 

Zomato has kicked off a new initiative called 'Feed the Daily Wager' to help daily wage workers in the country, which has so far collected more that ₹10cr ($1.3m).

 

In addition to this, all paid Zomato Gold memberships across India, UAE, Australia, Indonesia, Philippines, Lebanon, Turkey, New Zealand, Portugal and Qatar will get a two-month membership extension at zero cost. 

 

Zomato will also be facilitating working-capital loans for its Zomato Gold restaurant partners. [MediaNama]

 

CONSUMER

RBI allows deferment of all loan repayments until June 30th.

A Huge Sign of Relief

In a major relief to the common citizen, RBI Governor Shaktikanta Das today allowed borrowers to not pay any equated monthly installments (EMIs) for any loans until June 30th, subject to individual bank policy.

 

In addition to this, availing the moratorium will not entail any change in the existing terms and conditions of the loan. 

 

The reprieve will be available for loans taken from any financial institution for all loans outstanding as of March 1st 2020.

 

However, the moratorium won’t be applicable on credit card repayments as outstanding on such accounts is not classified as a term loan.

 

It is rather imperative to note here that the RBI has allowed banks and NBFCs to offer a three-month moratorium on term loans but the banks have to get an approval from their respective boards to implement the policy. Therefore the final decision of offering a moratorium is actually up to the lending institution. Subsequently, borrowers should get clarity from their lending institutions on how this moratorium, if or when offered, will work for them. [ET Wealth]

 

India's electricity use falls to lowest in five months. 

Lights Off Under Lockdown

India's electricity usage has fallen to the lowest in five months due to the lockdown.

 

As per Government data, national electricity demand fell to 2.78bn units on March 25th, the first day of the 21-day lockdown.

 

That was nearly 20% below the average of 3.45bn units per day in the first three weeks of March. 

 

As per this report by Reuters, if demand continues at these reduced levels, India’s electricity consumption for March is set to decline at the fastest pace Y-o-Y since October, when power use fell at its steepest in over 12 years due to a broad economic slowdown. [Reuters]

 

COMPANIES

Yes Bank approves proposal to raise ₹5,000cr ($663m); Prashant Kumar becomes MD and CEO. 

A Ray of Hope

Distressed private sector lender Yes Bank on Thursday approved a proposal to raise ₹5,000cr ($663m) by way of share sale, including qualified institutions and rights issue. 

 

With this, the new Board also came to the force with Prashant Kumar formally becoming the MD and CEO of Yes Bank. [ToI]

 

Retailers relieved as authorities issue guidelines to reverse the indiscriminate shutting of retail outlets and warehouses.

Good News Coming In

Retailers, both offline and online, witnessed an improvement after local authorities and police acted to reverse the indiscriminate shutting of retail outlets and warehouses. 

 

Trucks carrying essential supplies that had been stuck at state borders for days also began moving. [ET Retail]

 

TECH

 

Facebook appoints former Treasury Department official Robert M. Kimmitt as lead independent Board Director.

Shake it Up

Social media giant Facebook has announced that CEO of The Cranemere Group Limited Jeffrey D. Zients will not seek re-election to Facebook’s Board at the 2020 annual meeting, but will serve until then.

 

He will be replaced by former Treasury Department official Robert M. Kimmitt as lead independent Board Director. 

 

When Zients departs, the only remaining independent Directors besides Kimmitt will be early investors Marc Andreessen and Peter Thiel. They, Zuckerberg, and Facebook COO Sheryl Sandberg will be the only Board members who would have been on the job for more than a year.

 

In the past year, the company has announced the exit of five independent Directors - former White House Chief of Staff Erskine Bowles, Netflix CEO Reed Hastings, former Genentech Executive Susan Desmond-Hellmann, former American Express Chief Executive Kenneth Chenault and now Mr. Zients - replacing them in some instances with people who have pre-existing social or business relationships with Mr. Zuckerberg. [TechCrunch]

 

An equalisation levy of 2% to be applicable on sales made by foreign ecommerce companies operating in India. 

Extra Crunch

As per the amended Finance Bill, which was approved by the Parliament on Monday, with effect from April 1st, an equalisation levy of 2% will be applicable on sales made by foreign ecommerce companies operating in India as well as those transactions that use Indian data. 

 

The levy, which hitherto was applicable only to digital advertising players such as Google, has now been expanded to cover all digital ecommerce transactions. 

 

However, the Government  is likely to face challenges in imposing the new equalisation levy since the onus of paying the 2% tax will rest with foreign firms rather than consumers in India. 

 

Moreover, businesses may also seek deferral of any payment due to the current lockdown.

 

In addition to this, the move is expected make companies set up local operations in India for compliance and push costs on to customers. [ET Tech

FIN.

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