RBI rolls out package to combat economic distress

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Reserve Bank of India governor Shaktikanta Das today announced a series of measures to counter the economic slowdown caused by the novel coronavirus pandemic. Just a day ago, finance minister Nirmala Sitharaman released a Rs 1.7 lakh crore package to help the poor and needy tackle problems owing to the 21-day lockdown across the country.

The apex bank cut interest rates by 75 basis points to 4.4% and slashed cash reserve ratio (CRR) by 100 basis points to 3%. It also announced several measures to inject Rs 3.74 lakh crore liquidity into the system.

The RBI said it was maintaining its “accommodative” stance, and would maintain its position “as long as necessary” to revive growth, while ensuring inflation remained within target.

Here are the key points from RBI governor’s address:

Repo rate and reverse repo rate have been cut by 74 bps and 90 bps respectively. “The repo rate has been reduced by 75 basis points to 4.4 per cent. The reserve repo rate has been reduced by 90 basis points to 4 per cent,” Das said addressing the media. Repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks.

All commercial banks and lending institutions can now allow a three-month moratorium on all loans outstanding on 1 March 2020.

Cash reserve ratio (CRR) of all banks to be cut by 100 bps to 3%. Cash reserve ratio is the amount of cash commercial banks have to mandatorily park with the Reserve Bank of India.

Incremental CCB (capital conservation buffer) implementation deferred from 30 March 2020 to 30 September 2020.

Net Stable Funding Ratio (NSFR) was required to be introduced from 1 April 2020. Will defer NSFR implementation to October 2020.

“Indian banking system is safe and sound… In spite of the challenging environment, I remain optimistic,” the RBI governor said.

Das predicted a big global recession and said India will not be immune to it. It all depends how India responds to the situation, he said. He said countries are shutting down to prevent being sucked into a kind of black hole.

RBI will continue to be vigilant and take “whatever steps necessary” to mitigate the impact of the coronavirus on the economy, Das assured.