RBI Cuts Reverse Repo Rate To Boost Liquidity, Rs 50,000-Crore Push For Lenders

RBI Cuts Reverse Repo Rate To Boost Liquidity, Rs 50,000-Crore Push For Lenders
RBI Governor Shaktikanta Das said surplus liquidity in the system has increased substantially
  1. The RBI Governor announced long-term repo operations worth "Rs 50,000 crore to begin with". He said a special finance facility worth Rs 50,000 crore will be provided to financial institutions, including the National Bank for Agriculture and Rural Development (NABARD), the Small Industries Development Bank of India (SIDBI) and the National Housing Bank (NHB).
  2. The RBI chief announced the central bank's decision to ease the liquidity coverage ratio (LCR), which determines the proportion of highly liquid assets held by financial institutions. He said the LCR stands reduced to 80 per cent from 100 per cent, and will be restored in phases by April 2021.
  3. He said the latest measures are aimed at maintaining "adequate liquidity" and ease the financial stress in the system, and facilitate the flow of credit in banks. He reiterated that the RBI is monitoring the COVID-19 situation "very closely" and will continue to use all tools necessary to deal with the economic fallout from the outbreak.
  4. The economic activity has come to a standstill on account of the coronavirus-induced lockdown, the RBI chief said in his second address to the media since the country began a lockdown on March 25 to curb the spread of the coronavirus pandemic.
  5. "Surplus liquidity in the banking system has increased substantially as a result of the central bank's actions," Mr Das said. He said the country's banks and financial institutions have risen to the occasion to ensure normal functioning during the coronavirus outbreak.
  6. Loans given by shadow banks - or non-banking financial companies (NBFCs) - to real estate companies will also get the same benefits offered by scheduled commercial banks under a three-month moratorium announced by the RBI earlier. "The ways and means limit of the states have been raised to help them, not to bunch up their borrowing plans," Mr Das said.
  7. In relief for loan defaulters, the RBI said the 90-day non-performing assets (NPA) norm will not to apply to the moratorium granted on existing loans by banks. Currently, loan repayments overdue for 90 days are classified as NPAs - also known as bad loans. On March 27, the RBI had introduced a three-month moratorium on term loans with instalments due between March 1 and May 31.
  8. The RBI has taken steps "aimed at maintaining adequate liquidity in the system, incentivising bank credit flows, easing financial stress, and enabling the normal functioning of markets," Finance Minister Nirmala Sitharaman said on Twitter. 
  9. The central bank kept the repo rate - or the key interest rate at which the RBI lends short-term funds to commercial banks - unchanged at a 15-year low of 4.40 per cent. Last month, the MPC had reduced the repo rate by 75 basis - the biggest reduction under Mr Das.
  10. The RBI chief emphasized that this is not the last announcement on financial support during the crisis, stating the central bank will come up with responses in the future in the interest of the economy based on evolving situations.
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