- Date : 30/03/2020
- Read: 3 mins
The Central Bank of India, RBI, is stepping up and taking necessary measures to ensure liquidity and stability amongst the pandemic.
On 27th March 2020, the RBI governor Shaktikanta Das held a press conference. He announced a number of measures to ensure the stability and liquidity of the country’s financial system in the face of the coronavirus pandemic. For this, the monetary policy committee met a week ahead of the scheduled date, said Das.
Cut in repo rate
One of the major measures announced is the huge 75 basis points repo rate cut, bringing it down from 5.15% to 4.40%. Das said, “This decision of the rate cut and the advancement of MPC have been warranted by the disruptive force of COVID-19. It is intended to mitigate the negative effects of the virus, to revive growth and to preserve financial stability”.
This cut in the repo rate is to lower the cost of funds available in the economy. While this solution is of limited use during the lockdown, it will also, in turn, bring down the floating interest rate on home loans, thus helping the household cash flow during these tough times.
Moratorium on repayment on term loans
Another significant measure is that the RBI has permitted banks and other financial institutions to provide a 3-month moratorium for all instalments on term loans which are due between 1st March and 31st May. This includes all kinds of retail loans, like home loan, vehicle loan, personal loan, etc.
This is not a waiver of EMI but simply a payment deferment. This means that your interest will continue to accrue; however, the repayment schedule can be shifted, and no penalty will be charged for the same.
This is to provide some relief to the borrowers, protect their credit score, and ensure that banks can avoid a large onset of NPAs and keep their books healthy. However, the RBI has allowed the individual lenders to decide the eligibility criteria and exact terms of the moratorium.
Cut it CRR
There’s also a 100 basis points cut in the Cash Reserve Ratio (CRR) making it 3%, which means the banks will have more access to funds. To ensure liquidity in the money markets, that were facing pressure from redemptions of mutual funds, the Targeted Long-term Refinancing Operations (TLTRO) will give cash to banks to invest in commercial papers, investment-grade bonds, etc. This is to ensure that the money markets don’t seize up. If you want to understand how banks are going to operate during the complete lockdown in India read here.
The RBI governor also ensured that the central bank is ready to take whatever extra measures as and when required. “Let me assure you that the RBI is at work in mission mode. We have been monitoring the evolving financial market and the macroeconomic conditions and calibrating its operations to meet any need for additional liquidity support as well as to take other measures if warranted,” said governor Das. Finance Minister announces Rs 1.7 trillion relief package to fight Coronavirus