RBI

RBI COVID 19 Regulatory Complete Package

The Reserve Bank of India (RBI) has released 21st Issue of the Financial Stability Report (FSR), on 24th July 2020 which reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on risks to financial stability, and the resilience of the financial system in the context of contemporaneous issues relating to development and regulation of the financial sector.

RBI has discussed various relaxation due to COVID 19 via Press Conferences.

Regulatory package – COVID-19

Liquidity Measures Rationale/Impact
Targeted long-term repo operations (TLTRO) – RBI conducted term repo auctions of up to 3-year tenor for a total amount of Rs. 1,00,000 crore for investing in corporate bonds, commercial papers and non- convertible debentures with concession in MTM guidelines. Borrowing costs in financial markets have dropped to their lowest in a decade on the back of abundant liquidity. Interest rates on 3-month CPs (NBFC), 3-month CPs (non-NBFC) and 3-month CDs have softened by around 320 bps, 365 bps, 472 bps, respectively between March 23, 2020 and June 30, 2020. The spread of 3-year AAA-rated Corporate Bond (CB) over similar tenor government securities has decreased from 320 bps on March 26, 2020 to 114 bps on June 26, 2020 for NBFCs. Lower borrowing costs, coupled with deployment of TLTRO funds, have led to record primary issuance of corporate bonds of `2.09 lakh crore in the first quarter of 2020-21.
To enable better transmission of its monetary policy, RBI introduced Long Term Repo Operation (LTRO) under which RBI conducted term repos of one year and three year tenors at policy repo rate.

(*LTROs of `1 lakh crore each were announced on Feb 06, 2020 and Mar 16, 2020 of which auction for a total of `1,25,000 crores have been conducted so far).

Abundant liquidity conditions along with 3-year LTROs have anchored the short-term G-sec yields closer to the policy repo rate. The 3-month T-Bill yield has dropped around 195 bps since LTRO announcement in February and has generally remained lower than the reverse repo rate consistently since March. The 3-year G-sec yield too has dropped by 158 basis points while the 10-year yield has dropped by 74 bps between announcement of LTROs and July 10, 2020.

The government securities market has remained resilient and the G-Sec yields have remained in tight-range despite significant enlargement of government borrowing programme and increase in the borrowing limit of state governments.

The policy repo rate was brought down from 5.15 per cent on March 27, 2020 to 4 per cent on May 22, 2020. The Marginal Standing Facility (MSF) rate was reduced from 5.40 per cent to 4.25 per cent while the reverse repo rate under the Liquidity Adjustment Facility (LAF) was reduced from 4.90 per cent to 3.35 per cent. The Monetary Policy Committee (MPC) also decided to continue with the accommodative stance for as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy while ensuring that inflation remains within target. To lower borrowing costs and revive growth prospects.
CRR reduced by 100 basis points to 3 per cent of NDTL. Under MSF, banks were allowed to borrow by dipping up to 3 per cent into SLR. Reduction in CRR led to injection of liquidity of around `1,37,000 crore into the banking system while enhancement in MSF ceiling enabled them for better management of day to day liquidity.
 

Date Wise Regulatory Measures taken by RBI

Date Regulatory Measures Rationale
March 27, 2020 Deferment of interest on working capital facilities. Minimize the economic fallout.
March 27, 2020 Easing of working capital financing. Minimize the economic fallout.
March 27,2020 Deferment of implementation of the net stable funding ratio (NSFR). Regulatory relief for banks.
March 27,2020 Deferment of last tranche of CCB. Regulatory relief for banks.
March 27,2020 Banks permitted to allow a moratorium of 3 months on payment of instalments with respect to term loans. Minimize the economic fallout.
April 1, 2020 Extension in the realization period of export proceeds. For supporting exporters.
April 1, 2020 Extension in the implementation of a countercyclical capital buffer (CCyB) by one year. Regulatory relief for banks.
April 17, 2020 Increase in Ways and Means advances limits of states/UTs by 60 percent over and above the levels as on March 31, 2020. To provide greater comfort to states to undertake COVID-19 containment and mitigation efforts.
May 22, 2020 Extension of timelines for export credit and remittance for imports. Support exports/imports.
May 22, 2020 Exim Bank extended a line of credit of `15,000 crore. Meet    Exim   Bank’s foreign exchange requirements.
May 22, 2020 Moratorium extension for additional 3 months for term loans till August 31,2020 with relaxation in asset classification norms. Minimize the economic fallout.
May 22, 2020 Deferment of interest on working capital facilities for an additional 3 months till August 31, 2020 and the interest deferred can be converted into funded interest term loans to be paid be end of the financial year. Relaxation of asset classification norms permitted. Minimize the economic fallout.
May 22, 2020 Ease of computation of working capital finance till March 31, 2021. For supporting borrowers.
May 22, 2020 Extension of resolution timelines to exclude the period from March 1, 2020, till August 31,

2020.

Regulatory relief for banks.
May 22, 2020 Large exposure framework eased for a limit on group exposures. For supporting companies.
May 22, 2020 Rules governing withdrawal from the Consolidated Sinking Fund (CSF) for states eased to meet redemption of market borrowings. For supporting state governments.

The Securities and Exchange Board of India (SEBI)

Date Regulatory Measure Rationale
March 20, 2020 For stocks in the F&O segment with certain criteria, market wide position limits (MWPL) revised to 50 per cent of the existing levels. The rate of margin for such stocks in the cash market segment increased to a minimum of 40 per cent in a phased manner.

For non-F&O stocks with certain criteria, minimum margin rate in the cash market segment increased in a phased manner to

40 per cent or maximum intra-day high- low variations during the last one month, whichever is higher.

To ensure orderly trading and settlement, effective risk management, price discovery and maintenance of market integrity.
March 20, 2020 Position limits (short and long) in equity index derivatives revised. For effective risk management.
March 20, 2020 Introduction of 15 minutes cooling period before flexing of price bands for derivatives stocks introduced in Cash Market and F&O segment. For effective risk management.
March 23, 2020 Relaxation in timelines for certain periodic compliances with regulatory requirements by trading members / clearing members. To reduce the compliance burden on market participants.
March 23, 2020 Date of implementation of certain policy initiatives pertaining to risk-management framework for liquid and overnight funds, investment norms for mutual funds and valuation of debt and money market securities extended. To provide temporary relaxation in timeline and compliance requirement.
March 26, 2020 Reduced the trading time in commodity derivative segments of domestic exchanges up to 5.00 pm. To ensure orderly trading and settlement.
March 26, 2020 Timelines relating to holding of committee meetings such as the nomination and remuneration committees and the risk management committee and stakeholders relaxed by a period of 3 months. To reduce compliance burden.
March 26, 2020 Companies required to publish certain information such as notice for board meetings and financial results in newspapers. They are exempt from the requirements of publication of advertisements in newspapers. To reduce compliance burden.
March 27, 2020 The requirement of stock exchanges to disclose open interest and turnover for various categories of participants at the commodity and market levels on a daily basis deferred. To reduce the compliance burden on market participants.
March 27, 2020 Permitted exchanges/clearing corporations to design and implement their own frameworks for determining the final settlement price (FSP) or due date rate (DDR) in the commodity derivatives segment. To ensure orderly trading and settlement.
March 27, 2020 Relaxation on change in fresh issue size (IPOs/ rights issues/ FPOs), timeline for compliance with certain provisions of SEBI (SAST) Regulations, 2011 and provisions related to rights issues as contained in SEBI (ICDR) Regulations, 2018. To provide temporary relaxation in timeline and compliance requirement.
March 30, 2020 Extension of timelines for submission of monthly reports by portfolio managers and the due date for regulatory filings for alternative investment funds and venture capital funds. To provide temporary relaxation in timeline and compliance requirement.
March 30, 2020 Relaxations for CRAs with regard to recognition of default for corporates and extension in timelines for compliance with certain provisions of SEBI. To reduce the compliance burden on market participants.
March 30, 2020 Relaxation for FPIs from the requirement of submitting original and/or certified documents (including KYC details) to DDPs/ custodians. For temporary relaxations with respect to compliance requirement.
March 30, 2020 Regulatory limit of borrowing for mutual funds for meeting excessive redemption pressure and temporary liquidity requirements revised from 20 per cent to 40 per cent subject to certain conditions. Relaxation also provided in certain reporting requirements and the dealing room policy. To meet temporary liquidity requirements.
March 30, 2020 Extended the validity period for all schemes where observation letter was issued by SEBI and was yet to be launched to one year. Also, the deadline for implementation of Stewardship Code for all mutual funds and alternative investment funds extended. To provide temporary relaxation in timeline and compliance requirement.
March 30, 2020 Based on SEBI’s representation on extension of applicability of stamp duty on mutual fund transactions, government issued a notification to defer the applicability of stamp duty by 3 months to be effective from July 1, 2020. To provide regulatory relief to participants amidst pandemic.
April 6, 2020 Cut-off timing reduced for both subscription and redemption in various mutual fund schemes for a temporary period. To provide temporary relaxation.

The Insolvency and Bankruptcy Board of India (IBBI)

March 23, 2020 In the wake of the COVID-19 outbreak the Supreme Court ordered that the period of limitation in all proceedings shall stand extended w.e.f. March 15, 2020 till further orders. The Supreme Court took suo moto cognisance of the challenge faced by the country on account of COVID-19 and the resultant difficulties that litigants are facing in filing their petitions/applications/suits/ appeals/ all other proceedings within the period of limitation.
March 24, 2020 The Ministry of Corporate Affairs increased the threshold amount of default required to initiate an insolvency proceeding from `1 lakh to `1 crore to prevent MSMEs from being pushed into insolvency especially in the wake of the outbreak of COVID-19. Increasing the threshold to prevent MSMEs from being pushed into insolvency especially in the wake of the outbreak of COVID-19.
March 28, 2020 IBBI amended the IBBI (Insolvency Professionals) Regulations, 2016 and IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. The amendments provide for extensions in certain timelines prescribed under the regulations to ameliorate stakeholders pain in the insolvency ecosystem in the wake of the COVID-19 outbreak. The amendments provide for extensions in certain timelines prescribed under the regulations to ameliorate stakeholders pain in the insolvency ecosystem in the wake of the COVID-19 outbreak.
March 29, 2020 IBBI amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. For providing that the lockdown period imposed by the Central Government in the wake of the COVID-19 outbreak will not be counted for the purposes of the timeline for any activity that could not be completed due to the lockdown in relation to a corporate insolvency resolution process. This will, however, be subject to the overall time limit provided in the code.

Source: Financial Stability Report dated 24th July 2020


Disclaimer:

IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION.

 

CS Lalit Rajput

Company Secretary having 5 years of post-qualification experience in the Compliance Management Services industry by serving Corporates including Listed Companies, Corporate Secretarial Firms, and LLP. I have a keen interest in Corporate Governance and Compliance Management and the soaring craving to learn every day. The aim is to dive deep into the Corporate Governance sphere and help the industry with knowledge and practical exposure. Mail:- [email protected] Phone: +91 8802581290

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