Views on RBI Stimulus - Acuité Ratings & Research

Suman Chowdhury, President - Ratings, Acuité Ratings & Research Limited on the RBI stimulus announced today:

"Acuité believes that the comprehensive measures announced by RBI to tackle the disruption triggered by Covid-19 goes beyond the rate cut of 75 bps in the repo rate. 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 needs to be seen. What is really significant is the massive liquidity infusion plan by RBI through TLTROs or targeted longer term refinancing operations, the 1% cut in the CRR and increase in marginal standing facility to 3% of SLR, all aggregating to around Rs. 3.74 Lakh Cr. With the liquidity already infused by RBI since February 2020, this will amount to a liquidity stimulus of 3.2% of GDP and address the funding needs in a disrupted financial market. The TLTRO mechanism, in particular is likely to provide a lifeline to the bond markets as the banks can use these funds for investments in corporate bonds and commercial paper.

In our opinion, the announcement of the moratorium measures was on expected lines and really appropriate in the current context of economic lockdown. The 3 month moratorium on all term loan instalments along with deferment of interest on working capital for 3 months without any downward revision in the asset categorization for almost every lending institution in the country including banks and NBFCs will address the short term delinquency concerns in retail, MSME or corporate loans. This will also be a significant relief for the NBFC and the MFI sector whose operations are likely to be very severely impacted in this lockdown period. The flexibility provided to banks to redefine and recalculate drawing power based on margin adjustments will also help in providing additional working capital facilities in the current scenario".

Source : Equity Bulls

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