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RBI, Government Announce Major Steps to Support Economy Amidst Coronavirus Pandemic and Nationwide Lockdown

Professor of Financial Economics and Part-time Value Investor, Transfin.
Mar 29, 2020 6:18 AM 8 min read
Editorial

RBI takes giant steps to preserve financial stability amidst coronavirus pandemic and lockdown. RBI advances second tranche of purchase of Government securities under OMOs. FM announces measures to provide relief amid the coronavirus outbreak. Maruti Suzuki, Toyota, Honda, Jeep India, Mahindra and Hyundai suspend production. Uber, Ola halt operations till March 31st. SBI, ICICI Bank, and HDFC Bank revise banking hours, suspend non-essential services. OTT platforms asked to lower streaming resolution. Specialised online retail verticals witness as much as 20% fall in sales. Netflix is reducing its traffic on network providers by 25%. Abbott Laboratories launches a five-minute portable coronavirus test. India prepares for massive screening effort after April 14th. G20 nations to inject $5trn to combat coronavirus crisis.

 

 

RBI MEASURES

RBI advances second tranche of purchase of Government securities under OMOs.

Stepping on Gas 

The RBI had recently announced its intent to purchase Government securities under Open Market Operations (OMOs) for an aggregate amount of ₹30,000cr ($4,010m) in the month of March 2020 to maintain financial stability in the backdrop of the coronavirus outbreak. 

 

As per the initial press release, the auction will be conducted on March 24th and March 30th.

 

However, on a review of current liquidity and financial conditions, the Central Bank has decided to advance the second tranche of purchase for ₹15,000cr ($2,005m), originally scheduled to be conducted on March 30th 2020 to March 26th 2020. [RBI Press Release]

 

Also This

As a pre-emptive measure to tide over any frictional liquidity requirements on account of dislocations due to COVID-19, the RBI has decided to conduct fine-tuning variable rate repo auctions in two tranches of ₹50,000cr ($6,683m) each on March 23rd and March 24th. [RBI Press Release]

 

RBI announces repo rate cut & other measures amidst coronavirus pandemic and lockdown.

Big Bang Announcements

Desperate times warrant massive measures. The RBI 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]

 

GOVERNMENT MEASURES

FM announces measures to provide relief amid the coronavirus outbreak.

...Things Fall Apart

In the backdrop of the coronavirus outbreak, Finance Minister Nirmala Sitharaman in a press conference announced a slew of measures to provide relief amid the coronavirus outbreak. Here's a quick overview:

 

  • Last date for IT returns for FY19 extended to June 30th 2020
  • For delayed payments made till June 30th, interest rate reduced from 12% to 9%
  • Reduced interest rate of 9% vs 18% on delayed deposit of TDS
  • All compliances under Wealth Tax Act, Income Tax Act, Benami Transaction Act, Black Money Act, have been extended to June 30th
  • Aadhar-PAN linking date to be extended to June 30th
  • Vivaad Se Vishwas scheme also extended to June 30th
  • There shall not be any minimum balance requirement fee for bank account
  • Debit card withdrawals from ATMs won't be charged for the next three months; these withdrawals can be made from any ATMs
  • Insolvency proceedings threshold limit extended to ₹1cr ($133,677) from existing ₹1L ($13,367)

 

Government announces ₹1.5L cr ($19.6bn) relief package.

In This Together

Finance Minister Nirmala Sitharaman announced a ₹1.5L cr ($19.6bn) relief package for the poor to help them deal with the impact of coronavirus outbreak, a day after the entire nation went into a 21-day lockdown to break the chain of infection and flatten the curve. 

 

She also announced a slew of economic measures to support people through coronavirus scare. They include:

  • ₹2,000 to be immediately front-leaded in the account of 8.7cr farmers under PM Kisan Samman Nidhi 
  • Free of cost 5 kg rice or wheat and 1 kg pulse under PM Garib Kalyan Package
  • LPG cylinders to be given free of cost to the beneficiaries of Ujjwala Yojana for the next three months
  • Increase in MNREGA wage to ₹202 a day from ₹182, benefiting 5cr families

 

View in full here. [CNBC TV18]

 

BUSINESS AS UNUSUAL

Maruti Suzuki, Toyota, Honda, Jeep India, Mahindra and Hyundai suspend production.

#BreakTheChain

In the backdrop of the increasing number of coronavirus cases, the Central Government and various State Governments have imposed lockdowns to break the chain of the spread. Complying with this, various carmakers, including Hyundai, Toyota, Mahindra and Maruti Suzuki, have decided to halt production at their facilities until further notice. [ZigWheels]

 

Uber, Ola halt operations till March 31st.

Sorry, Your Cab Has Been Cancelled

Ride hailing services Uber and Ola have also suspended their operations till March 31st amidst the lockdown.

 

The news comes shortly after they had temporarily suspended their shared rides. [Business Today]

 

SBI, ICICI Bank, and HDFC Bank revise banking hours, suspend non-essential services.

We're All in This Together

Owing to the rise in the number of coronavirus cases in the country, and lockdown instructions from Governments, several banks have revised their banking timings and have suspended non-essential services such as passbook updates and over the counter cheque collections.

 

They will, however, continue to provide four essential services including cash deposits and withdrawals, clearing of cheques, and government transactions.

 

Private lenders such as IndusInd Bank, HDFC Bank and ICICI Bank will now remain open for just four hours of the day. [Financial Express]

 

TECH DURING CORONA

OTT platforms asked to lower streaming resolution.

Keep Low and Stay Home

Cellular Operators Association of India (COAI) has written to the telecom department and over-the-top (OTT) companies such as Netflix, Hotstar, Voot and Amazon Prime Video to lower the streaming resolution in order to reduce the burden on the networks in the wake of surge in demand owing to more and more people working from home and staying indoors due to the coronavirus outbreak. [HT]

 

Net-fix

Netflix has said it will lower its traffic on network providers by 25% in India for 30 days in order to reduce congestion on internet pipelines. It will still “maintain the quality” of its service, it added.

 

“Given the crisis, we’ve developed a way to reduce Netflix’s traffic on telecommunications networks by 25% while also maintaining the quality of our service. So consumers should continue to get the quality that comes with their plan – whether it’s Ultra-High, High or Standard Definition. We believe that this will provide significant relief to congested networks and will be deploying it in India for the next 30 days,” Ken Florance, VP Content Delivery of Netflix, said in a statement. [TechCrunch]

 

Specialised online retail verticals witness as much as 20% fall in sales. Netflix is reducing its traffic on network providers by 25%.

Preparing for the Worst

As per sources, specialised online retail verticals such as Lenskart, Myntra, Nykaa, Pepperfry, FirstCry and Zivame have witnessed fall in sales by as much as 20% over the last two weeks as "people defer discretionary spending" on the back of the coronavirus outbreak. [ET Tech]

 

WhatsApp records 40% increase in usage.

Together in Distress

As per new data from insights and consulting firm Kantar, Facebook-owned messaging platform WhatsApp has recorded 40% increase in usage as more users venture online to stay connected with family, friends and colleagues amidst the coronavirus pandemic and the subsequent lockdown imposed in multiple nations.

 

In places where the pandemic has hit the hardest, video and voice calling on Messenger and WhatsApp doubled. Italy clocked the highest number where people spend 70% more time on Facebook-owned apps with group calling having increased by over 1,000%. WhatsApp usage in Spain was up 76%.

 

Despite the increase in usage however, consumers reported they didn’t trust the social media platforms for critical news related to COVID-19. National news channels and government agency websites were considered better options. [TechCrunch]

 

FIGHTING COVID-19

Abbott Laboratories launches a five-minute portable coronavirus test.

Test, Test, Test, and Test Even More

US-based medical device maker Abbott Laboratories has devised a coronavirus test than tell if someone is infected or not in as little as five minutes. The test is also small and portable, and can thus be used in any healthcare setting.

 

The company reportedly plans to scale up manufacturing and supply 50,000 tests a day starting April 1st.

 

The test begins with taking a swab from the nose or the back of the throat, mixing it with a chemical solution that breaks open the virus – if it is present – after which the mixture is inserted into a system that identifies any traces of the coronavirus genome. Large concentrations of COVID-19 can be identified in under five minutes while a thorough search can take up to 13 minutes. [BBG Quint]

 

India prepares for massive screening effort after April 14th.

Hold On to Your Testing Kits

India's 21-day lockdown may not be the first national lockdown imposed to counter the coronavirus crisis - that distinction belongs to Italy - but it is the largest lockdown in history. It affects all 1.3bn citizens in every state of the world's second-most populous country.

 

During this lockdown, medical professional can make do with limited testing kits with fewer people on the streets and most people isolated. However, once the restrictions are lifted and people come out of their homes, a massive testing programme is impertinent to identify positive COVID-19 cases.

 

The Indian Council of Medical Research (ICMR) had reportedly sought quotations earlier this week from suppliers for a million antibody kits (for screening through blood tests) and also 700,000 RNA extraction kits (the swab-based test for confirming COVID-19). As on Friday, a total of 157 laboratories were gearing up for large-scale testing. [BS]

 

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]

FIN.

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