Aggarwal: Banks have Rs.3.74 lakh crore more liquidity
The sharp cut in policy rates and the relaxation for banks under the large exposure framework on drawdowns under the Target Long-Term Repurchase Operation (TLTRO) can aid stronger and well managed companies as they raise fresh funding at finer rates.
Stating this, Anil Gupta, Vice President, Sector head, Financial Ratings, ICRA Ltd said the measures are expected to improve the trading volumes in the debt markets compared to the previous week as secondary market liquidity risks are alleviated to an extent.
The liquidity infusion measures along-with a higher cut in reverse repo rate will nudge banks to push credit growth as the negative carry on their funds will increase thereby impacting their profitability.
“We also expect a sharp cut of 50-60 bps in 1-year deposit rates in the near term given the surplus liquidity in the banking system,” said Gupta.
RBI announced on 27 Mar 2020 a 75bps repo rate cut.
With ~60% of debt market issuance volume attributable to financial sector entities, ICRA expects a sizeable portion of TLTRO funds to flow to NBFCs.
With this NBFCs may be better placed to rollover their debt maturities as no moratorium is currently available for debt capital instruments.
Deferment of scheduled increase in regulatory capital requirements by six months shall aid banks’ ability to support credit requirements in the short term.
It also gives them more time to raise new capital given the sharp correction in the current environment. The said deferment will imply that the regulatory capital requirements for the sector is lower by around Rs.56,000 crore, according to Gupta.
Welcoming the RBI measures, the PHD Chamber of Commerce and Industry is hoping that the banking sector will transmit the full effect of cut in repo rate and lower the lending rates immediately, said Dr Aggarwal.
Now the banking sector will have a Rs.3.74 lakh crore more liquidity which is very much adequate at this point of time, PHD Chamber President Dr D K Aggarwal said on 27 Mar 2020.
Lower cost of credit and increased liquidity will help the businesses to meet up their day to day liquidity requirements and mitigate the impact pandemic COVID-19, he said.
The reverse repo rate cut by 90 basis points to 4% is appreciable as it will make it unattractive for banks to passively deposit funds with the RBI and instead lend it to the productive sectors, said Dr Aggarwal.
It is highly encouraging that banks are being permitted to allow a moratorium of three months on payment of installments in respect of all term loans outstanding as on March 1, 2020 by RBI.
Measures such as conducting auctions of long term repo operation (LTRO) of three-year tenure up to Rs.1 lakh crore at floating rate linked to policy rate; increasing Marginal Standing Facility (MSF) limit to 3% of SLR from 2% would go a long way in creating liquidity in the economy and mitigate the impact of Pandemic COVID-19 on industry, said Dr Aggarwal.
Lending institutions are allowed to defer interest on working capital repayments by three months is highly appreciable at this juncture and will boost confidence of industry stakeholders, said Dr Aggarwal. fiinews.com
