RBI cuts reverse repo rate, announces slew of steps to boost liquidity

RBI cuts reverse repo rate, announces slew of steps to boost liquidity



In a bid to tackle the financial crises in the wake of the ongoing lockdown till May 3, following the coronavirus pandemic, Reserve Bank of India(RBI) Governor Shaktikanta Das has announced a 25 basis point cut in reverse repo rate (the one at which the central bank borrows from commercial banks). However, he has kept the repo rate (one at which the central bank lends to commercial banks) unchanged.

In his second press briefing after the lockdown was announced, Das' meet on Friday aimed at easing liquidity and bank credit and support the economy. Das said Rs 6.9 lakh crore was absorbed by RBI on April 15 through reverse repo rate.

The cut in reverse repo rate, he said was aimed at encouraging banks to lend more in these tough times. Last month, the bank advanced its Monetary Policy Committee meeting and cut the repo rate by as high 75 basis points.

NBFCs have now been allowed to relax NPA classification for borrowers under moratorium. They can also avail of the relaxed non-performing assets (NPA) classification announced for commercial banks to their borrowers. Non-performing classification will exclude moratorium period, Das said.

To ensure that the health of banks is maintained, the RBI Governor said lenders would have to keep 10 per cent higher provisions on accounts. Shaktikanta Das said the central bank was increasing the WMA (ways and means advances) limits by 60 per cent, to help plan market borrowings better. The facility would be available till September 30.

He said banks must use 50 per cent funds under TLTRO 2.0 to small and mid-size NBFCs under the new TLTRO 2.0. Funds would be made available to small and mid-size firms and banks would have to disburse funds in a month. The amount of Rs 50,000 crore can be increased, said Das.

He also announced Rs 25,000 crore to NABARD, Rs 15, 000 crore to SIDBI for refinancing commercial banks and NBFCs and Rs 10,000 crore to NHB.