RBI's Accomodative Stance to revive Growth

Understanding the RBI steps for COVID-19 Pandemic

Reserve Bank of India (RBI) governor Shaktikanta Das, March 27, announced quite a few steps to battle it out against the economic slowdown caused by the COVID-19 pandemic.

So the significant decisions and their impact on banks are as below

A massive 75 basis points cut in repo rates- Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds and by decreasing the Repo Rate RBI has invited commercial banks to take more and more fund from RBI so that enough funds available with them to lend to borrowers in coming days when companies and organizations will need after the pandemic situation.

90 basis points have cut the reverse repo rate to 4 percent- Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country, or the banks keep cash with RBI. By decreasing the Reverse repo rate RBI has made it unattractive for banks to passively deposit funds with the RBI and instead lend it to the productive sectors.

All banks and NBFCs are being permitted to allow a 3-month moratorium on payment of term loans- Moratorium on term loan, deferring of interest on working capital will not classify as default, not to impact credit history of the borrower.

CRR (cash reserve ratio) of all banks to be cut by 100 bps to 3%-- The Reserve Bank of India or RBI mandates that banks store a proportion of their deposits in the form of cash so that the same can be given to the bank’s customers if the need arises so Banks now have to keep less cash with the RBI which in turn can be given to borrowers.