Updates from RBI announcements

[zashmaster]

The announcements on 17 Apr were expected to focus on relief packages for the MSME sector. In anticipation, the markets were in positive territory by a clear 3+ %. Points below are paraphrased from the speech of RBI governor.

Context

1. RBI has been proactive in the very critical situation
2. There have been some announcements every 2-3 days
3. Today's briefing focuses on specific meaures
4. 150+ officers and service staff are in 'office quarantine' working on critical matters like currency supply
5. Since previous Mar 27 address, macro situation has declined further. 9 trillion USD is the estimated impact on world economy due to lockdown.
6. India is expected to have the highest GDP growth rate among G20 economies.
7. IMF is projecting a V shaped recovery.
8. Agriculture and food production in India is expected to be strong, despite the lockdown
9. IIP for Feb 2020 was high; however Mar numbers would show lockdown impact - auto production, freight movement, exports, etc have shown declines already
10. Banking operations have been running smoothly in lockdown - little downtime in internet and mobile banking; ATMs are running, business correspondents have been at 80%, etc.
11. In Feb and Mar, RBI has injected more than 3% of GDP in liquidity; more TLTRO since Mar 27
12. Redemption pressure faced by some mutual funds have moderated a bit

Measures

1. Objectives - maintain liquidity, help bank credit growth, ease financial stress, smooth financial markets
2. Focus on MSME and MFI
3. TLTRO 2.0 - 50,000 crores to begin with - Banks have to use these for NBFC, with at least 50% going to small NBFCs
4. All India financial institutions - NABARD, SIDBI, NHB, etc - would get additional funding of 50,000 crore. To be used for lending to and refinancing MSME, HFC The amount is with the consultation of these instis. RBI would add more if required. Funding would be at repo rate of 4.4%
5. Liquidity Adjustment Facility - 6,9 lac crore has come to RBI via reverse repo. Another 25 basis point cut in reverse repo to 3.75
6. WMA (Ways and Means Advance) limit to states increased to 69% - greater comfort to states to plan covid-19 measures - would be available till end of Sep
7. NPA classification - Moratorium would be excluded in classifications of NPA. i.e Accounts that were good on Mar 1 would continue to be so even if the moratorium has been used ("Standstill")
8. Banks to maintain a higher provision of 10% on such standstill arrangement. This is to contain the risk of moratorium
9. Resolution timelines - extended to 300 days from 210 days
10. Dividends by banks - Banks should not make dividend payouts
11. LCR (Liquidity Coverage Ratio) brought down from 100% to 80% - would go up to 90% in Oct and 100% in Apr 21
12. NBFC loans to real estate firms can be extended by 1 year without being classified as NPA
13. More measures would come as needed

 

[zashmaster]

An update on the inflation trend. RBI expects the downward trend to continue, save for supply side issues, and get to the target of 4% by the second half of FY20-21.

 

[padraig_leigheanach]

@zashmaster No benefit of credit lines extended to debt mutual funds, who have been crying for it due to mass redemptions

even in 2008 crisis RBI had extended credit lines to mutual funds.. Now nothing is being done.

With more and more ratings actions all debt funds are going to crash hard.

Here RBI is said to be "weighing" it up... https://www.livemint.com/news/india...-funds-hit-by-cash-crunch-11585135849949.html

Now its been 3 weeks of weighing things up

 

[yssa4w]

@padraig_leigheanach Can someone please explain to me how much of a risk this is for debt funds with Tier 1 AMCs and AUMs over 10000 Cr? For the first time I have put money in them, as long term idle backup cash for emergencies. Please tell me I've not fucked up.

 

[padraig_leigheanach]

@yssa4w Liquid funds are mostly safe. At most if the situation really worsens (I mean much much worse economically than what we have now, leading to mass requirement of money by individuals -> mass redemptions) then the fund managers, to honor the redemptions coming in think and fast, may have to sell the papers they have at a discount. Anyway its worth following NAV on a day to day basis. If there is a sudden 0.5%/1% NAV drop then redeem it right away. However Liquid funds investing in AAA papers should not have much issues, as liquid funds can only invest such that weighted average term of all papers approx 91 days...within which its hard to see a AAA company close down.

Other debt funds are death traps.

There is no point investing in a A rated paper offering only 9-11%... in India given the huge risks, it doesnt make sense unless poorly rated papers offer as high 15%. Poorly managed run of the mill companies with no innovation yet carrying huge debt on books are the bane of economy and should never have access to cheap funding in the first place.

However the careless AMCs and their greedy fixed income managers tie up deals with shady companies and siphon off gullible investors money at a rate that makes no sense

 

[bronsontaur]

@zashmaster This is delusional

Even before this pandemic we had a demand issue, with 1.5 months of lockdown without income this demand issue is going to become bigger

There will be no supply side issue, demand hi nahi rahega toh supply kya karega?!

 

[padraig_leigheanach]

@bronsontaur RBI and other govt agencies have long been in severe delusion.

Today RBI gov predicted economy to grow at 7% next year

I could only laugh..

 

[bronsontaur]

@padraig_leigheanach Given how this government removed 2 governors for trying to act independently and then appointing a historian as the RBI governor despite experts pleading to appoint an economist

I believe RBI is compromised now and is just another agency of government

 

[zashmaster]

@bronsontaur

Given how this government removed 2 governors for trying to act independtly

I won't argue about Urjit Patel. But definitely the govt didn't remove RR. He completed his term and the govt considered giving him another term. He wanted the second term to end on his timeline - timed with the opening at the university. Obviously the govt did not accept it. His parting statement says this in so many words!

 

[elijah13]

@bronsontaur

Given how this government removed 2 governors for trying to act independently

Isn't the RBI SUPPOSED to act independently of the center.

 

[olddogdiver]

@padraig_leigheanach

Today RBI gov predicted economy to grow at 7% next year

It could be possible considering the very low growth this year which could provide a positive base effect next year. Also the sudden increase in economic activity next year would help.

 

[yssa4w]

@olddogdiver Bhai this growth figure is not a truly YoY figure to avoid precisely this bullshit. They also have a factor of several weighted averages over different durations in the denominator. This is not a class 9 word problem, "Sita had an economy worth $2.2T in 2020 and it became $2.4T in 2021, so calculate the % growth of the economy."