The Coronavirus lockdown has had an adverse impact on the national economy. To assure the public of the RBI’s movement towards sustaining the economic environment, Governor Shaktikanta Das gave a statement declaring India is capable of covering for the economic slowdown.
After that, the Monetary Policy Committee on Friday released a list of policy changes they will implement to adjust for the economic slowdown. The list includes a repo rate decrease of 75 basis points. The RBI will also give the economy a Rs 3.74 lakh crore liquidity boost along with loan installments deference for three months. There are several other announcements made in the release, which we will be mentioning below.
What Is the RBI Trying to Do With These Changes?
The RBI is trying to equip banks and other institutions with the financial leverage they will need once the 21-day lockdown is removed. It is expected that businesses will try to cover for the loss of businesses working by taking short term loans. If banks get the ability to give out loans with relaxed installment terms, lower interest rates, and easier qualification criteria, then this will help the economy a lot.
According to the RBI, this will enable businesses to reacquire their working volume within a few weeks of the lockdown’s end. Keeping in line with this, the RBI has also reversed repo rate to 4 percent, which will allow banks to lend even more efficiently. The following list gives a general overview of all the major RBI decisions in light of the economic impact of the Coronavirus:
10 Significant Policy Changes by RBI to Counter Coronavirus
- All loan payments, including principal and interest, have been deferred by three months. However, banks have the discretion to implement this deference period. Once the period is over, the accumulated interest will be payable to the lender.
- The repo rate has been cut by 75 basis points or 0.75 percent. It will enable all kinds of loan seekers to get their desired financial assistance at easier prices.
- The combined reduction in interest rates will be at 1.25 when including 0.5 rate cut and the new 0.75 rate cut.
- The MPC has announced it will increase Cash Reserve Ratio (CRR) by 100 bps. It will negatively impact the interest rates on deposits.
- The three months loan repayment deference will not result in the payees’ accounts being considered NPA. So, their credit history will not be impacted.
- The RBI will be infusing the economy with Rs 3.74-lakh-crore liquidity after the lockdown is over.
- Banks will be allowed 3-year durable liquidity or funds up to 1 lakh crore.
- The marginal standing facility is raised to 3 percent, and banks can get an additional 1.37 lakh crore from RBI.
- The reverse repo rate is down to 4 percent to prevent the stacking of surplus banks funds with the RBI. And encourage forward lending practices.
- Capital conservation buffer last tranche has been granted six-month deference.
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