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Key regulatory announcements in the MPC meeting

Incentivizing flow of credit to the MSME segment; RBI to issue uniform guidelines for microfinance lenders

The Reserve Bank of India (RBI) has made a few key announcements in its Statement on Developmental and Regulatory Policies. These include:

* Inclusion of NBFCs in the TLTRO on Tap scheme for incremental lending to stressed sectors identified in the KV Kamath Committee. Banks will provide funds under the TLTRO scheme to NBFCs.

* Restoration of Cash Reserve Ratio (CRR) to 4%: To improve liquidity in the system, the RBI had earlier announced various measures such as a 100bp CRR reduction to 3%. This measure was expected to create additional liquidity of ~INR1.37t in the system. With adequate liquidity available to banks, it has decided to gradually restore the CRR in two phases to 3.5% by 27 Mar’21 and 4% by 22 May’21.

* Extension of the Marginal Standing Facility (MSF) limit relaxation to 3% till 30 Sep’21: This dispensation provides increased access to funds up to INR1.5t and additionally qualifies for high-quality liquid assets (HQLA) in the computation of LCR.

* In order to incentivize incremental flow of credit to new MSME borrowers, RBI has decided that banks would be allowed to deduct credit disbursed to new MSME borrowers from their NDTL (Net Demand and Time Liabilities) for calculation of CRR. This relaxation would be applicable towards borrowers, which have not availed any credit till 1 Jan’21, up to a loan ticket size of INR2.5m. This would be positive for banks like AUBANK and EQUITAS, which have a small ticket size exposure to MSMEs.

* Deferment in the last tranche of Capital Conservation buffer (CCB): Implementation of the last tranche of CCB of 0.625% was further deferred till 1 Oct’21 on account of COVID.

* Review of the regulatory framework for microfinance: The RBI will issue a new framework, which would be uniform across all lenders focusing on microfinance loans. The key to watch out for in the new framework would be the guidelines towards the lending limit per exposure. However, the RBI had last year increased the lending limit for NBFC-MFI to INR0.13m from INR0.1m earlier. Among Banks, BANDHAN has a high ticket size loans in the MFI space v/s other peers and also resisted from signing the common ‘Code of Responsible lending’. Thus, the impact of the RBI framework for microfinance on BANDHAN would be key to watch out for.

* Extension for SLR holdings in HTM investments: To provide certainty towards the borrowing program mentioned in the Budget, RBI has extended the dispensation of enhanced HTM limits to 22% (from 19.5%) of NDTL, with respect to SLR securities up to 31 Mar’23 v/s Mar’22 earlier. This would be applicable for securities acquired between 1 Apr’21 and 31 Mar’22. The said limits would be restored to 19.5% in a phased manner starting from 30 Jun’23.

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