Reserve Bank of India (RBI) governor, Shaktikanta Das on Friday announced the second round of measures to address the COVID-19 crisis by launching a series of liquidity easing steps specifically targeting the Non-banking finance companies (NBFCS) and MFIs that have been suffering on account of tight cash conditions.

Targeted Long term repo operations (TLTRO) worth Rs 50,000 crore to begin with, in tranches of appropriate sizes. Based on our assessment, the RBI will increase the size of the TLTRO, Das said. The funds availed by banks should be invested in investment-grade bonds companies and at least half of the funds should go to small NBFCs and MFIs, Das said.

This is positive for MFIs that have been suffering from liquidity drought. Further, the RBI also announced refinancing measures to the tune of Rs50,000 crore for all India financial institutions such as Nabard, SIDBI and NHB. Also, the reverse repo rate reduced to 3.75 percent from 4 percent.

Das began his presser saying RBI has been proactively watching the situation very closely especially with respect to the measures already taken. The central bank is of the view that the macroeconomic situation has worsened on account of the COVID-19 situation. India, though will suffer on the growth front this year, is expected to rebound sharply in FY2022, Das said, citing the IMF predictions. IMF had predicted a growth of 1.9 percent in the current fiscal year and 7.4 percent in the next fiscal.

These measures are significant for microlenders since these companies have been gasping for money. The average loan tenure of NBFC-MFI borrowers is just 18-24 months. For banks, this is much longer. MFIs borrow money at about 10-12 percent from banks and charge about 23 percent interest rate from borrowers.

The average loan ticket size of Rs 31,000 crore. There are 54 NBFC-MFIs in the country with about 5.6 crore microfinance borrowers. Indian microlenders have a total loan book of Rs 2.16 crore out of which NBFC-MFIs have Rs 73,000 crore. According to RBI data, outstanding loans to the entire NBFC sector from banks stand at Rs 7 lakh crore.

Source & Courtesy: moneycontrol.com