The Reserve Bank of India announced a huge 75 basis points rate cut on March 27, bringing it to 4.40 percent from 5.15 percent.
Announcing a series of measures to ensure liquidity and stability in the country’s financial system as India battles coronavirus, the Reserve Bank of India governor Shaktikanta Das said the monetary policy committee met almost a week ahead of the scheduled date.
The RBI slashed repo rate by 75 bps to 4.40 percent while the reverse repo rate, which sets the floor of the liquidity adjustment facility, was reduced by 90 bps to 4 percent.
The RBI said that the coronavirus pandemic will affect the growth of most sectors.
There is a rising probability that a large part of the global economy will slip into recession. Turning to growth in India, the 5 percent growth expectation is at risk, the RBI governor said.
The RBI said that despite ample liquidity in the system, its distribution was highly asymmetrical.
The RBI also reduced the minimum daily CRR balance from 90 percent to 80 percent, effective March 28. This is a one-time dispensation available up to June 26, 2020.
The RBI increased the accommodation under the marginal standing facility from 2 percent of the statutory liquidity ratio to 3 percent with immediate effect. This measure will be applicable up to June 30, 2020 and it should provide comfort to the banking system by allowing it to avail an additional Rs.1.37 lakh crore of liquidity under the LAF window.
These measures will inject a liquidity of 3.74 lakh crore in the system.
The RBI also decided to widen the monetary policy rate corridor.
All lending institutions have been permitted a three-month moratorium on payments of instalments of all term loans outstanding as of March 1, 2020.
Lending institutions can defer by three months payment of interest outstanding as on March 1 on working capital facilities sanctioned in the form of cash-credit and overdraft and such. The accumulated interest for the period will be paid at the end of the deferment period.
The moratorium on term loans and the deferment of interest on working capital will not result in asset classification downgrade, the RBI governor said.
In respect of working capital facilities sanctioned in the form of cash credit, overdraft, lending institutions are allowed to recalculate drawing power by reducing margins or by reassessing the working capital cycle for borrowers.
The RBI governor said the central bank was closely monitoring the situation and will step in whenever required.
Announcing a series of measures to ensure liquidity and stability in the country’s financial system as India battles coronavirus, the Reserve Bank of India governor Shaktikanta Das said the monetary policy committee met almost a week ahead of the scheduled date.
The RBI slashed repo rate by 75 bps to 4.40 percent while the reverse repo rate, which sets the floor of the liquidity adjustment facility, was reduced by 90 bps to 4 percent.
The RBI said that the coronavirus pandemic will affect the growth of most sectors.
There is a rising probability that a large part of the global economy will slip into recession. Turning to growth in India, the 5 percent growth expectation is at risk, the RBI governor said.
The RBI said that despite ample liquidity in the system, its distribution was highly asymmetrical.
The RBI also reduced the minimum daily CRR balance from 90 percent to 80 percent, effective March 28. This is a one-time dispensation available up to June 26, 2020.
The RBI increased the accommodation under the marginal standing facility from 2 percent of the statutory liquidity ratio to 3 percent with immediate effect. This measure will be applicable up to June 30, 2020 and it should provide comfort to the banking system by allowing it to avail an additional Rs.1.37 lakh crore of liquidity under the LAF window.
These measures will inject a liquidity of 3.74 lakh crore in the system.
The RBI also decided to widen the monetary policy rate corridor.
All lending institutions have been permitted a three-month moratorium on payments of instalments of all term loans outstanding as of March 1, 2020.
Lending institutions can defer by three months payment of interest outstanding as on March 1 on working capital facilities sanctioned in the form of cash-credit and overdraft and such. The accumulated interest for the period will be paid at the end of the deferment period.
The moratorium on term loans and the deferment of interest on working capital will not result in asset classification downgrade, the RBI governor said.
In respect of working capital facilities sanctioned in the form of cash credit, overdraft, lending institutions are allowed to recalculate drawing power by reducing margins or by reassessing the working capital cycle for borrowers.
The RBI governor said the central bank was closely monitoring the situation and will step in whenever required.
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