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    RBI Announces Regulatory Changes to Ease Impact of COVID-19 Pandemic

    February 05, 2021

    RBI published a statement that sets out policy measures for banks, including certain regulatory changes arising from the COVID-19 relaxations. The statement highlights that to aid in the recovery process amid the COVID-19 pandemic, RBI decided to defer implementation of the last tranche of the capital conservation buffer (CCB) of 0.625%, from April 01, 2021 to October 01, 2021. Additionally, RBI decided to defer the implementation of Net Stable Funding Ratio (NSFR) from April 01, 2021 to October 01, 2021. Other key policy measures covered in this statement relate to the inclusion of non-banking financial companies (NBFCs) under the Targeted Long-Term Repo Operations (TLTRO) on Tap Scheme, extension of marginal standing facility relaxation, increase in limits under the statutory liquidity ratio (SLR) holdings in held-to-maturity category, and provision of credit to micro, small, and medium enterprise (MSME) entrepreneurs.

    The following are the highlights of the key announced measures:

    • Inclusion of NBFCs under TLTRO on Tap SchemeBanks under the TLTRO on Tap scheme will provide funds to NBFCs for incremental lending to these sectors. RBI, in October 2020, had announced the TLTRO on Tap Scheme, which is available up to March 31, 2021.
    • Extension of marginal standing facility relaxationOn March 27, 2020, RBI allowed banks to avail funds under the marginal standing facility by dipping into the SLR by up to an additional 1% of the net demand and time liabilities—that is, cumulatively up to 3% of net demand and time liabilities. To providing comfort to banks on their liquidity requirements, a decision has been made to continue with the marginal standing facility relaxation for an additional six months—that is, up to September 30, 2021.
    • Increase in limits under SLR holdings in held-to-maturity categoryOn September 01, 2020, RBI increased the limits under held-to-maturity category from 19.5% to 22% of net demand and time liabilities in respect of SLR-eligible securities acquired on or after September 01, 2020, up to March 31, 2021. It has now been decided to extend the dispensation of enhanced held-to-maturity limit of 22% up to March 31, 2023, to include securities acquired between April 01, 2021 and March 31, 2022. The held-to-maturity limits would be restored from 22% to 19.5% in a phased manner, starting from the quarter ending June 30, 2023. It is expected that banks will be able to plan their investments in SLR securities in an optimal manner, with a clear path for restoration of held-to-maturity limits.
    • Provision of credit to MSME entrepreneurs—To incentivize new credit flow to the MSME borrowers, scheduled commercial banks will be allowed to deduct credit disbursed to "new MSME borrowers" from their net demand and time liabilities for the calculation of cash reserve ratio. For the purpose of this exemption, "new MSME borrowers" shall be defined as those MSME borrowers that have not availed any credit facilities from the banking system, as on January 01, 2021. 

    Keywords: Asia Pacific, India, Banking, COVID-19, Credit Risk, TLTRO, Basel, Regulatory Capital, NSFR, Capital Conservation Buffer, SME, SLR, Held to Maturity, Liquidity Risk, RBI

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