Measures introduced by RBI to mitigate COVID-19 impact

On 27.03.2020, The Reserve Bank of India Governor Shaktikanta Das responded with regards to the increasing coronavirus issue by making some major announcements to handle the economic crisis which are as follows:

  • Cuts repo rate by a whopping 75 basis points to 4.4%, lowest ever.

Repo rate is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control money supply in the economy, thereby inflation.

  • Lowers reverse repo rate by 90 basis points.
  • Cuts CRR by 100 bps to 3%, unlock Rs. 1.37 lakh crore liquidity

CRR or cash reserve ratio is the percentage of total deposits that banks are required to keep in reserves either in the vaults or with RBI so that the same can be given to bank’s customers if the need arises. Banks do not get any interest on this money. It is one of the major weapons in RBI’s arsenal that allows it to maintain a desired level of inflation, control money supply and liquidity in the economy. Lower the CRR, the higher liquidity with banks, which in turn goes into investment and lending and vice-versa.

  • Allows banks, other lenders to extend loan repayment schedule and moratorium by 3 months
  • The RBI allowed banks and other lending institutions to extend the repayment schedule and moratorium by three months to avoid large NPAs and reduce risk weights. This would apply to all term loans as RBI also allowed all lending institutions to allow a moratorium up to three months for all loans outstanding as at March 1, 2020.
  • Assures depositors their money is safe, bank stocks crash should not worry them.

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