NEW DELHI: The Reserve Bank of India (RBI) on Friday cut the reverse repo rate by 25 basis points to 3.75% even as it kept the repo rate unchanged at 4.4%, the increased spread between the two key policy rates meant to tell the banks to not park their money with the central bank and instead lend more to corporate and individuals.

The central bank today took several steps to improve liquidity in the money markets, particularly for non-banking finance companies (NBFCs) as they were finding it hard to raise funds.

Announcing the launch of second installment of targeted long term repo operations -- TLTRO 2.0 -- for easing credit to NBFCs, Das said the central bank will conduct them for an amount of ₹50,000 crore, to begin with, in tranches of appropriate sizes.

Das said the funds will have to be invested in investment grade bonds, commercial paper, non-convertible debentures of NBFCs with at least 50% of it going to small and mid-sized NBFCs and micro finance institutions (MFIs) within one month of availing the credit from RBI.

“Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25% of total investment permitted to be included in the HTM portfolio. Exposures under this facility will also not be reckoned under the large exposure framework," Das said. The notification on TLTRO 2.0 will be released today, he said.

Das said this was being done as it was observed that funds raised via TLTRO 1.0 have been parked in bonds issued by public sector entities and large corporates. NBFCs and MFIs have thus found it hard to raise money.

Das said the measures were meant to maintain adequate liquidity in the system and its constituents in the face of covid-19 related dislocations; facilitate and incentivise bank credit flows; ease financial stress; and enable normal functioning of markets.

Between 6 Feb and 27 March, RBI has injected liquidity totaling 3.2% of GDP to de-stress financial markets. He said because of these steps, financial conditions have eased considerably as reflected in yields of bond markets.

Among other steps announced to alleviate the pain of the banks, the RBI asked scheduled commercial banks and cooperative banks to not make any further dividend payouts from profits pertaining to FY20 (April-March).

“This restriction shall be reviewed on the basis of the financial position of banks for the quarter ending September 30, 2020," Das said.

Das said India’s foreign exchange reserves continue to be robust, coming at $476 billion as on 10 April equivalent to 11.8 months of imports.

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