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 about 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 auction sof upto 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 market shaved ropped to their low estina decade on the back of abundant liquidity. Interest rates on 3-month CPs (NBFC), 3-month CPs (non-NBFC) and 3-month CD shave 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 Rs. 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 ten or sat policy reporate.
(*LTROs of`1 lakh crore each were announced on Feb 06, 2020 and Mar 16, 2020 of which auction for a total of Rs. 1,25,000 crores have been conducted so far). |
Abundant liquidity conditions along with 3-year LTRO shave anchored the short-term G-secyields closer to the policy repo rate. The 3-month T-Billyield has dropped around 195 bps since LTRO announcement in February and has generally remained lower than the reverse reporate consistently since March. The 3-year G-secyield 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-Secyield shave remained in tight-rangede spite significant enlargement of government borrowing programme and increase in the borrowing limit of state governments. |
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| The policy reporate was brought down from 5.15 percent on March 27, 2020 to 4 percent on May 22, 2020. The Marginal Standing Facility (MSF) rate was reduced from 5.40 percent to 4.25 percent while the reverse repo rate under the Liquidity Adjustment Facility (LAF) was reduced from 4.90 percent to 3.35 percent. 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 in flation remains with in target. | To lower borrowing costs and revive growth prospects. | ||||||||||||||||||||||||||||||||||||||||||
| CRR reduced by 100 basis points to 3 percent of NDTL. Under MSF, banks were allowed to borrow by dipping upto 3 percent into SLR. | Reduction in CRR led to injection of liquidity of around Rs. 1,37,000 crore in to 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
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| May 22, 2020 | Ease of computation of working capital finance till March 31, 2021. | For supporting borrowers. | |||||||||||||||||||||||||||||||||||||||||
| May 22, 2020 | Extension of resolution time lines to exclude the period from March 1, 2020 till August 31, 2020. | Regulatory relief for banks. | |||||||||||||||||||||||||||||||||||||||||
| May 22, 2020 | Large exposure frame worke as for 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 percent of the existing levels. The rate of margin for such stocks in the cash market segment increased to a minimum of 40 percent 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 or derly 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 frame work for liquid and over night 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 | Time lines 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 news papers. 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 the irown frame works 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 percent to 40 percent subject to certain conditions. Relaxational so 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-of timing reduced for both subscription and redemption in various mutual fund schemes for at emporary period. | To provide temporary relaxation. |
The Insolvency and Bankruptcy Board of India(IBBI)
| March 23, 2020 | In the wake of the COVID-19 out break 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 to oksuomotocognisance of the challenge faced by the country on account of COVID-19 and the resultant difficulties that litigant sare 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 Rs. 1 lakh to Rs. 1 crore to prevent MSMEs from being pushed in to insolvency specially in the wake of the outbreak of COVID-19. | Increasing the threshold to prevent MSMEs from being pushed in to insolvency especially in the wake of the out break 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 stake holders pain in the insolvency ecosystem in the wake of the COVID-19 out break. | 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 out break. |
| 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 out break will not be counted for the purposes of the time line 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 over all time limit provided in the code. |
Source: Financial Stability Report dated 24th July 2020.
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