POLICIES INSTRUMENTED BY RBI TO COMBAT THE

PRESENT ECONOMIC SCENARIO OF OUR COUNTRY

AFTER THE OUTBREAK OF COVID – 19

❖ NEW POLICIES ANNOUNCED BY RBI:

The recent announcements by Reserve Bank of India after the Monetary Policy
Committee’s meeting held between March 24-27 would provide a big relief to
the individuals and businesses facing a big economic challenge in the wake of
the 21-day lockdown announced by the government on March 23, 2020.

These policies directly address the financial stress caused by Covid-19

pandemic, the Reserve Bank of India said in its statement. The policies consist
of expanding liquidity, reinforcing monetary transmission, easing financial
stress and improving the functioning of markets.

Key highlights:

➢ RBI slashes repo rate by 0.75% to 4.40%.

➢ The reverse repo rate reduced by 90 basis point to 4%.
➢ Banks and other lending entities, including non-banking finance
companies and microfinance companies, are permitted to allow
borrowers a three-month moratorium on payment of instalments of all
term loans outstanding as of March 1, 2020.
➢ Auction of targeted long-term repo operations of 3-year tenor for Rs. 1L
crore.
➢ CRR reduced by 100 basis points releasing Rs. 1,37,000 Cr.
➢ Accommodation under Marginal Standing Facility to be increased from
2% Statutory Liquidity Ratio to 3% till June 30, 2020, releasing 1.37L
crore.

❖ ANTICIPATED IMPACT OF SUCCESSFUL IMPLIMENTATION OF THE

POLICIES:
➢ The liquidity measures combined would make Rs. 3,74,000 Cr. available
to India’s financial system.
➢ The 1 percent cut in CRR from 4 percent to 3 percent for one year
ending March 26, 2021, will infuse liquidity to the tune of Rs 1.37 lakh
crore and also help in reducing the cost of funds for banks.
➢ The reduction in daily CRR maintenance requirement to 80 percent
from 90 percent currently till June 26, 2020, will provide some relief for
banks’ reporting requirements for its treasury staff under the current
exceptional circumstances.
➢ The increase in Marginal Standing Facility limit to 3 percent from 2
percent, applicable up to June 30, 2020, will provide additional liquidity
of Rs 1.37 lakh crore under the Liquidity Adjustment Facility. Such a
move will also help banks in computation of SLR.
➢ The deferment of the implementation of the last tranche of 0.625
percent of capital conservation can have capital ease of around Rs
60,000 crore, which will be very crucial for banks and can be converted
to a business opportunity of more than Rs 8 lakh crore.