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Covid- 19 RBI Relief Measures (2.0) – Revision in FDI Policy

rbi

Regulatory Measures:

Asset Classification & Provisioning

  • RBI allowed Banks to grant moratorium period of 3 months from 1st March, 2020 to 31st May, 2020 in its earlier relief package. Such moratorium period of 3 months shall be excluded for the purpose of asset classification under IRAC Norms.
  • Additional general provision of 10% is required to be made in respect of such accounts, which shall be spread over two quarters (i.e. Quarter ending on 31st March, 2020 & 30th June, 2020)

 

Extension of resolution timeline

  • Lenders are required to implement resolution plan within 180 days from the end of review period of 30 days.
  • In respect of accounts where review period is expiring between 1 st March and 31st May, 2020, residual review period shall resume on 1 st June, 2020.
  • In respect of accounts where 180 days resolution period is not expired as on 1st March, 2020, resolution period shall be extended by 90 days from the date of original expiry.

 

Restriction on dividend distribution by Banks

  • Restriction on distribution of dividend by banks from the profits pertaining to FY 2019-20.
  • This restriction will be reassessed by RBI based on the financial results of banks for quarter ending on 30th September, 2020.

 

Liquidity Coverage Ratio (LCR)

  • Banks are required to maintain 100% LCR w.e.f. 1st January, 2019. In order to accommodate Bank’s cash flows, Banks are permitted to maintain LCR in below manner :
    • 17th April, 2020 to 30th September, 2020 – 80%;
    • 1st October, 2020 to 31st March, 2021 – 90%;
    • 1st April, 2021 onwards – 100%.

 

NBFC Loans to Commercial real estate projects

  • In terms of extant guidelines for Banks, the date of commencement for Commercial operations (DCCO) in respect of commercial real estate projects delayed beyond the control of promoters can be extended by one year without considering it as restructuring.
  • The same benefit is also extended to NBFCs to provide relief to NBFCs as well as the real estate sector.

 

Liquidity Measures

Targeted Long Term Operations (TLTRO) 2.0

  • RBI will conduct TLTRO (2.0) for an aggregate amount of Rs. 50,000 Crores.
  • Funds availed by Banks under TLTRO (2.0) should be invested within 30 days in investment grade bonds, commercial papers and nonconvertible debentures with NBFCs, with at least 50% shall be apportioned as under :
    • 10% in securities issued by MFIs,
    • 15% in securities issued by NBFCs with asset size of Rs. 500 Crore and below,
    • 25% in securities issued by NBFCs with asset size b/w Rs. 500 Crores and Rs.5,000 Crores.
  • Investment made will be classified as held to maturity (HTM) even in excess of 25% of total investment permitted in HTM portfolio.

 

Refinancing for All India Financial Institutions (AIFIs)

  • RBI has decided to provide special refinance facilities for a total amount of Rs. 50,000 Crores to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs.
  • This will comprise Rs. 25,000 Crores to NABARD, Rs. 15,000 Crores to SIDBI and Rs. 10,000 Crores to NHB.
  • Rate of interest of loan will be 4.4%

 

Fixed Rate Reverse Repo Rate

  • In order to encourage banks to deploy surplus funds in investments and loans in productive sectors of the economy, RBI has decided to reduce fixed rate reverse repo rate under liquidity adjustment facility by 25 basis points from 4.0% to 3.75%.

 

Sources:

 

Revision in FDI Policy

Present Position Revised Position
A Non – resident entity can invest in India subject to the FDI Policy except in those sectors / activities which are prohibited. Citizen / entities incorporated in any country with which India shares land borders (i.e. Nepal, Pakistan, China, Bangladesh, Burma, Bhutan, Sri Lanka & Afghanistan) or where beneficial owner of an investment into India is situated in such countries can invest in India with prior Government approval.
Citizen of Bangladesh or Entities incorporated in Bangladesh are allowed to invest in India with prior
Government approval.
Further, where due to transfer of ownership of existing FDI resulting in the beneficial ownership to the citizen or entities incorporated in the above mentioned countries, such transfer is also subject to government approval.
Citizen of Pakistan or entities incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and  sectors/activities prohibited for foreign investment. There is no change in present position for investment
from Bangladesh & Pakistan.

 

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Disclaimer:
The information contained herein is intended for general guidance only. It shall not to be used as a substitute of professional advice. Before acting on any matters contained herein, reference should be made to press releases, circulars or any other publication issued by respective authorities. Khandhar Mehta & Shah will not be responsible to any person.

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