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April 17, 2020

Corona (Covid-19) Effect : RBI cuts Reverse Repo Rate by 25 bps

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In the wake of Corona virus (Covid 19) crisis and the subsequent countrywide lockdown in India, the Reserve Bank of India (RBI) governor Shaktikanta Das today announed the reduction in reverse repo rate by 25 basis points from 4 per cent to 3.75 per cent. This move will help in injecting liquidity in financial markets. However, the repo rate remains unchanged.  Addressing the media, Das said on April 14, International Monetary Fund released its global growth projections, revealing that in 2020, the global economy is expected to plunge into the worst recession since 'The Great Depression'.

Here are the Major Highlights of the Reserve Bank Governor Shaktikanta Das's address to the media today
  • 50% of the funds in TLTRO 2,0 is for small and medium-sized NBFCs
  • 60% of ways and means advances allowed to states until September 30, 2020
  • A special Rs 50,000 crore refinance facility for Nabard (RS 25,000 crore), Sidbi (Rs 15,000 crore) and NHB (Rs 10,000 crore)
  • ATMs have worked at 91% capacity during this period.
  • Banks will need to maintain additional provisioning of 10 per cent on standstill accounts
  • Banks won't announce dividends until further notice
  • Every data on monsoon, sowing, fertilisers bode well for agri and rural outlook but situation is sombre in other industrial sectors.
  • India expected to stage a smart recovery to grow at pre-coronavirus pace of 7% in FY21, according to the IMF
  • India is one of the few countries projected to hang on to - perhaps tenuously - 1.9% GDP growth, according to the IMF.
  • LCR requirement brought down from 100% to 80% with immediate effect. LCR requirement to be restored to the previous level in a phased manner
  • Liquidity management: Will undertake TLTRO 2.0 operations. LTRO of Rs 50,000 cr to begin with in many tranches for NBFCs
  • Loans given by NBFCs to real estate companies to get similar benefit as given by scheduled commercial banks
  • Macroeconomic landscape has deteriorated since March 27, 2020.
  • NBFCs allowed to grant relaxed NPA classification to their borrowers
  • NBFCs' loans to delayed commercial real estate projects can be extended by a year without restructuring
  • No downtime has been observed for internet or mobile banking.
  • NPA classifications will exclude the three-month moratorium period till May-end
  • Since March 27, surplus liquidity has increased sharply in the banking system.
  • The global economy is going through the worst phase since the Great Depression.
  • The impact of Covid-19 has not been captured in recent IIP data.
  • The RBI has taken several steps to ensure normal functioning of banks.
Note : In the last meeting on March 27, the RBI had announced a massive 90 bps cut in reverse repo rate, the rate at which the RBI borrows money from banks by lending securities, to ensure surplus liquidity in the system. The repo rate was reduced to a 15-year-low of 4.40 per cent and was also the steepest cut since October 2004.

New Policy Rates and Reserve Ratios of RBI 2020 (as on 17th April)

  • Repo Rate : 4.40%
  • Reverse Repo Rate : 3.75%
  • Marginal Standing Facility (MSF) Rate : 4.65%
  • Bank Rate : 4.65%
  • CRR : 3%
  • SLR : 18%
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