Tracking India’s Steps to Contain Economic Fallout of the Virus

(Bloomberg) -- India’s government and central bank are trying to cushion an economy that was slowing even before the coronavirus outbreak.

Here’s a guide to the measures announced so far:

For Banks:

• CHEAPER CASH: A series of steps announced this year aim to encourage banks to lend.
  • Banks don’t need to set aside cash reserves for loans given to small businesses between Jan. 31 to July 31, or for credit to help consumers buy a car or home (announced Feb. 6)
  • Policy lending rate -- the repurchase rate -- cut by 75 basis points in a single move this year. However, the effective deposit rate has been slashed by 115 basis points to discourage lenders from playing safe and parking the cash with the RBI (March 27 and April 17)
  • Cash Reserve Ratio reduced to 3% from 4% (March 27)
  • Liquidity Coverage Ratio lowered to 80% from 100% (will be restored to 90% by Oct. 1 and 100% by April 1, 2021)

• LOAN FREEZE: RBI Governor Shaktikanta Das has stopped the clock on loan repayments amid an unprecedented three-week lockdown announced by Prime Minister Narendra Modi
  • All lenders can freeze repayments for three months on term loans outstanding March 1
  • Lenders allowed to suspend interest payments on working capital facilities for three months; accumulated interest can be paid later and the loans won’t be in default
  • The steps add to previous measures which allow a one-off restructuring of loans to small businesses that were in default as of Jan. 1
  • Loans to commercial property projects that are delayed for reasons beyond the control of the developer are allowed to be treated as standard for another year

• REGULATORY DEFERRALS: Implementation of stricter regulations have been delayed
  • Rules requiring banks to fund their activities through stable sources has been deferred to Oct. 1 from April 1
  • Completion of Capital Conservation Buffer pushed to Sept. 30 from March 31
  • Lenders allowed an additional 90 days to reach a resolution plan on large accounts in default (April 17)

• SPECIAL WINDOWS: These include support for corporate borrowers as well as rural industry
  • TLTRO 1.0 -- 1 trillion rupees of targeted long term funds from the central bank to banks for investing only in corporate bonds, aimed at easing cash crunch at firms (on April 15, RBI announced new rule capping the exposure of any bank to a single entity at 10% of TLTRO funds invested)
  • TLTRO 2.0 -- initial 500 billion rupees targeted at shadow lenders, with at least half going to lower rated firms (April 17)
  • Special refinance to umbrella organizations -- 500 billion rupees to go to pan-India financiers like Sidbi, Nabard, NHB that affordably fund the rural sector and agriculture (April 17)
  • Credit line for mutual funds -- 500 billion rupee credit facility running April 27 to May 11, or until the funds are utilized, whichever is earlier (April 27)

• HIGHER PROVISIONS: Banks ordered to maintain higher provision of 10% on all frozen loans spread over the January-March and April-June quarters, which can be adjusted later against actual slippages (April 17)
• DIVIDENDS HALTED: Banks can’t pay dividends for the year ended March 31 to conserve capital. Decision will be reviews on the basis of their financial position on Sept. 30

Sovereign Bonds and Rupee:

• MORE MONEY: The RBI has been injecting additional liquidity in the banking system to keep down bond yields
  • At its February policy review, the RBI said it will provide 1 trillion rupees of one- and three-year cash at the policy rate via long-term repo operations to help monetary transmission (Feb. 6)
  • The RBI ramped up these measures in March and April
    • Two variable rate repo operations of 500 billion rupees to fine-tune liquidity at the financial year end
    • Enhanced a temporary liquidity tap for primary bond underwriters to 100 billion rupees from 28 billion rupees
    • 1 trillion rupees of LTROs
    • Open market purchase of govt bonds worth 100 billion rupees March 20; another total 300 billion rupees of OMO purchases March 24 and March 26
    • 1 trillion rupees via 16-day variable rate repos

• INVITING FOREIGNERS: India opened up a wide swath of its sovereign bond market to overseas investors, taking its biggest step yet to secure access to global indexes as the government embarks on a record borrowing plan
• LIMIT BORROWING: India announced a fiscal first-half borrowing number that’s lower than what traders expected, as it seeks to check any rise in yields amid a global risk aversion that’s sparked outflows from emerging markets

• MORE DOLLARS: RBI pledged to inject dollars through dollar-rupee swaps
  • Two $2 billion swap lines each for March 16 and March 23 provided $2.7 billion

• SHORTER TRADING HOURS: Trading in sovereign debt and the rupee will be held from 10 a.m. to 2 p.m. Mumbai time starting April 7 through April 30. These markets normally worked from 9 a.m. to 5 p.m.

For Capital Markets:

• Allows companies additional 45 days for declaring their quarterly and annual results; extends the date for submission of corporate governance report by a month; company boards exempted from provision of maximum time gap between two meetings (March 19)

• Trading margin in stocks increased, market-wide position reduced to ease volatility in stocks (March 20)

• Compliance requirements relaxed for ReITs, InVITS, extends deadline for risk management rules for liquid mutual funds; timeline for filing debenture and preference share issues extended (March 23)

• Raised the threshold of defaults needed to trigger insolvency proceedings to 10 million rupees from 100,000 rupees (March 24)

• Capital, debt market services exempt from lockdown (March 25)

• Allows top 100 listed companies another month to comply with the requirements of holding annual general meeting (March 26)

• Shareholders allowed 45 more days to disclose their consolidated shareholding in companies for the financial year ending March 31 (March 27)

• Relaxed the recognition of default by local credit rating companies if a delay in payment of interest or principal is due; allows foreign portfolio investors relaxation in document processing (March 30)

• Eased rules to fast-track rights issues, and also extended the validity of its observations on public issues by six months from the date of expiry to help companies raise funds amid the coronavirus pandemic (April 17)

• Lowers by 50% broker turnover and filing fees on offer documents for public issues, rights issues and share buybacks (April 27)

For States and Wider Economy

• EXPORTS: The time period for realization and repatriation of export proceeds for shipments before July 31 extended to 15 months to provide greater flexibility to exporters in negotiating future export contracts with buyers abroad

• STATES’ BORROWING: State administrations have been permitted to borrow as much as half their annual target for the year starting April 1 whenever they choose. In a typical year, strict rules would govern the timetable, which would include cash transfers from the federal government that are now under threat as the lockdown erodes revenue.
  • RBI decided to increase the Ways and Means limit -- short term funding cap -- by 60% for all states to enable them to “tide over the situation.” Revised limits came into effect in April, and will be valid for six months
  • Eases states’ overdraft rules through Sept. 30 to handle cashflow mismatches

• CROPS: State agencies will buy more oilseeds and pulses from farmers at government-set minimum purchase prices

• LOCKDOWN EASED: India allowed farmers and certain industries outside virus hotspots to resume operations from April 21

For Consumers:

• FREE FOOD AND FUEL: 800 million poor people will get 5 kilograms wheat or rice and 1 kg pulses every month during April to June; 80 million families to get free cooking gas

• CASH TRANSFERS: 200 million women with basic bank accounts will get 500 rupees a month until June; 30 million senior citizens, widows and disabled to get 1,000 rupees; 87 million farmers will be immediately paid 2,000 rupees under an existing program

• INSURANCE: 2.2 million health workers fighting COVID-19 will get an insurance cover of 5 million rupees

• JOBS AND WAGES: For people earning less than 15,000 rupees a month, government will pay 24% of their monthly wages that feed into pension and provident fund accounts; Wages under job guarantee program increased to provide annual benefit of 2,000 rupees to a worker

©2020 Bloomberg L.P.