RBI COVID 19 Regulatory Complete package
The Reserve Bank of India (RBI) has released 21st Issue of the Financial Stability Report (FSR), on 24th July 2020 which reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, and the resilience of the financial system in the context of contemporaneous issues relating to development and regulation of the financial sector.
RBI has discussed various relaxation due to COVID 19 via Press Conferences.
Regulatory package – COVID-19
|Targeted long-term repo operations (TLTRO) – RBI conducted term repo auctions of up to 3-year tenor for a total amount of Rs. 1,00,000 crore for investing in corporate bonds, commercial papers and non- convertible debentures with concession in MTM guidelines.||Borrowing costs in financial markets have dropped to their lowest in a decade on the back of abundant liquidity. Interest rates on 3-month CPs (NBFC), 3-month CPs (non-NBFC) and 3-month CDs have softened by around 320 bps, 365 bps, 472 bps, respectively between March 23, 2020 and June 30, 2020. The spread of 3-year AAA-rated Corporate Bond (CB) over similar tenor government securities has decreased from 320 bps on March 26, 2020 to 114 bps on June 26, 2020 for NBFCs. Lower borrowing costs, coupled with deployment of TLTRO funds, have led to record primary issuance of corporate bonds of Rs. 2.09 lakh crore in the first quarter of 2020-21.|
|To enable better transmission of its monetary policy, RBI introduced Long Term Repo Operation (LTRO) under which RBI conducted term repos of one year and three year tenors at policy repo rate.
(*LTROs of Rs. 1 lakh crore each were announced on Feb 06, 2020 and Mar 16, 2020 of which auction for a total of Rs. 1,25,000 crores have been conducted so far).
|Abundant liquidity conditions along with 3-year LTROs have anchored the short-term G-sec yields closer to the policy repo rate. The 3-month T-Bill yield has dropped around 195 bps since LTRO announcement in February and has generally remained lower than the reverse repo rate consistently since March. The 3-year G-sec yield too has dropped by 158 basis points while the 10-year yield has dropped by 74 bps between announcement of LTROs and July 10, 2020.
The government securities market has remained resilient and the G-Sec yields have remained in tight-range despite significant enlargement of government borrowing programme and increase in the borrowing limit of state governments.