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Friday, April 16, 2021

RBI cuts the Reverse Repo Rate to fight the COVID 19 impact in India

The Reserve Bank of India unveiled the second tranche of liquidity and regulatory measures amid the coronavirus crisis. This comes on top of RBI’s earlier stimulus efforts that were announced towards end of March 2020.

The Reserve Bank of India has cut the reverse repo rate by 25 bps and is now 3.75 percent from 4 percent, to discourage the banks from deploying their surplus funds. The lower rates will enable the banks to channelize funds in various sectors.

The Reserve Bank of India Governor, Mr. Shaktikanta Das, in his online address, said that the virus had deteriorated the financial landscape. However, there is still some hope from some sectors. He also said that the Reserve Bank would be monitoring the situation and take preferable steps to overcome the challenges that are posed by the deadly virus. He added, “eventually, we shall cure; and we shall endure.”

Long term repo operations

The pandemic has caused a lot of disruptions and has severely impacted small and medium enterprises and non-banking financial companies and MFIs. The Reserve Bank of India shall be conducting long term repo operation on these targeted areas, which shall be for an aggregate amount of Rs. Fifty thousand crores in appropriate size to address the liquidity needs of these corporates or institutions.

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The Reserve Bank of India has said that a special facility for refinancing would be provided to the National Bank for Agriculture and Rural Development for about rupees five thousand crores. (25,000 crores for cooperative banks, regional rural banks, and MFIs; rupees 15 crores for refinancing the Small Industries Development Bank of India; and Rs. 10,000 for supporting the National Housing Bank). 

The Reserve Bank of India has also increased the Ways and Means Advances states limit by 60 percent to provide the states with greater ease and mitigate the coronavirus efforts and plan their borrowing programmes better. They have increased this limit till 30th September 2020.

The Reserve Bank of India also said that as on from 1st March 2020, the 90 days Non-performing asset norm shall be excluded from the moratorium period. There shall be a standstill on the asset classification for all such Non-performing assets dating from 1st March 2020 to may 31, 2020, and banks are exempted from paying their dividend pay-out for the year ending 2019- 2020.

The decision of the Reserve Bank of India was highly appreciated by the Prime Minister Mr. Narendra Modi as he tweeted that the announcement by the Reserve Bank shall improve liquidity and improve the supply of credit. And all these steps shall help Micro Small and Medium Enterprises, small businesses, farmers, and poor people. 

Reverse repo rate slashed by 25 bps to 3.75%; policy repo rate unchanged at 4.40%

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