HIGHLIGHTS OF MONETARY POLICY REVIEW BY RBI 0N 05.02.2021

• The RBI has kept the key policy rates unchanged as follows:Repo Rate 4%Reverse Repo Rate 3.35%Bank Rate 4.25%Marginal StandingFacility Rate 4.25%• As per RBI estimates the economy may grow at 10.5% in real terms.

• Restoration of CRR at 4% of NDTL has been planned in two tranches. It will be raised to 3.5% as on March27, and to 4% as on May 22, 2021. Impact contraction in liquidity in the system, but RBI has ensured enough liquidity by adopting a slew of other measures to nullify this impact.

• Deferment of Net Stable Funding Ratio: In view of the ongoing stress on account of COVID-19, it has been decided to defer the implementation of NSFR guidelines by a further period of six months. Accordingly, the NSFR Guidelines shall come into effect from October 1, 2021.

• HTM category limit relaxations has now been extended to March 2023. It has now been decided to extend the dispensation of enhanced HTM of 22 per cent to March 31, 2023 to include SLR securities acquired between April 1, 2021 and March 31, 2022. Thus, banks may exceed the limit specified in paragraph 2(b) above up to 22 per cent of NDTL (instead of 19.5 per cent of NDTL) till March 31, 2023, provided such excess is on account of SLR securities acquired between September 1, 2020 and March 31, 2022.The schedule for restoring the enhanced HTM limit to 19.5 per cent of NDTL specified in paragraph 3 of the circular dated October 12, 2020 referred to above is accordingly modified.

The enhanced HTM limit shall be restored to 19.5 percent in a phased manner, beginning from the quarter ending June 30, 2023, i.e. the excess SLR securities acquired by banks during the period September 1, 2020 to March 31, 2022 shall be progressively reduced from the HTM category such that the total SLR securities under the HTM category as a percentage of the NDTL does not exceed:a. 21.00 per cent as on June 30, 2023b. 20.00 per cent as on September 30, 2023c. 19.50 per cent as on December 31, 2023As per extant instructions, banks may shift investments to/from HTM with the approval of the Board of Directors once a year and such shifting will normally be allowed at the beginning of the accounting year. However, in order to enable banks to shift their excess SLR securities from the HTM category to available for sale (AFS)/ held for trading (HFT) to comply with the instructions as indicated in paragraph 5 above, it has been decided to allow such shifting of the excess securities during the quarter in which the HTM ceiling is brought down. This would be in addition to the shifting permitted at the beginning of the accounting year.

• Basel III Regulations: The pre-specified trigger for loss absorption through conversion / write-down of Additional Tier 1 instruments (Perpetual Non-Convertible Preference Shares and Perpetual Debt Instruments), shall remain at 5.5 per cent of risk weighted assets (RWAs) and will rise to 6.125 per cent of RWAs from October 1, 2021.Edit

HIGHLIGHTS OF MONETARY POLICY REVIEW BY RBI 0N 05.02.2021

• The RBI has kept the key policy rates unchanged as follows:Repo Rate 4%Reverse Repo Rate 3.35%Bank Rate 4.25%Marginal StandingFacility Rate 4.25%• As per RBI estimates the economy may grow at 10.5% in real terms.

• Restoration of CRR at 4% of NDTL has been planned in two tranches. It will be raised to 3.5% as on March27, and to 4% as on May 22, 2021. Impact contraction in liquidity in the system, but RBI has ensured enough liquidity by adopting a slew of other measures to nullify this impact.

• Deferment of Net Stable Funding Ratio: In view of the ongoing stress on account of COVID-19, it has been decided to defer the implementation of NSFR guidelines by a further period of six months. Accordingly, the NSFR Guidelines shall come into effect from October 1, 2021.

• HTM category limit relaxations has now been extended to March 2023. It has now been decided to extend the dispensation of enhanced HTM of 22 per cent to March 31, 2023 to include SLR securities acquired between April 1, 2021 and March 31, 2022. Thus, banks may exceed the limit specified in paragraph 2(b) above up to 22 per cent of NDTL (instead of 19.5 per cent of NDTL) till March 31, 2023, provided such excess is on account of SLR securities acquired between September 1, 2020 and March 31, 2022.The schedule for restoring the enhanced HTM limit to 19.5 per cent of NDTL specified in paragraph 3 of the circular dated October 12, 2020 referred to above is accordingly modified.

The enhanced HTM limit shall be restored to 19.5 percent in a phased manner, beginning from the quarter ending June 30, 2023, i.e. the excess SLR securities acquired by banks during the period September 1, 2020 to March 31, 2022 shall be progressively reduced from the HTM category such that the total SLR securities under the HTM category as a percentage of the NDTL does not exceed:a. 21.00 per cent as on June 30, 2023b. 20.00 per cent as on September 30, 2023c. 19.50 per cent as on December 31, 2023As per extant instructions, banks may shift investments to/from HTM with the approval of the Board of Directors once a year and such shifting will normally be allowed at the beginning of the accounting year. However, in order to enable banks to shift their excess SLR securities from the HTM category to available for sale (AFS)/ held for trading (HFT) to comply with the instructions as indicated in paragraph 5 above, it has been decided to allow such shifting of the excess securities during the quarter in which the HTM ceiling is brought down. This would be in addition to the shifting permitted at the beginning of the accounting year.

• Basel III Regulations: The pre-specified trigger for loss absorption through conversion / write-down of Additional Tier 1 instruments (Perpetual Non-Convertible Preference Shares and Perpetual Debt Instruments), shall remain at 5.5 per cent of risk weighted assets (RWAs) and will rise to 6.125 per cent of RWAs from October 1, 2021.

Prof. S.P.Singh

One stop solution for all updates in the Banking Arena, assisting one and all to reach soaring heights in their careers. Analysis on recent policies and its impact in the "finance" domain, coming straight from a seasoned Banker and mentor of 1982 vintage.

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