RBI to immunize the economy by injecting Rs.3.7 lakh crore amidst the Coronavirus lockdown.

RBI Governer Shaktikanta Das addressed a press conference to delineate the juncture of the Indian Economy and the measures taken by RBI to keep the wheels of the economy turning amidst the virus outbreak considering the intensity and the economic impact of the same.

The Monetary Policy Committee on Friday reduced the Repo Rate by 75 bps i.e to 4.4% from 5.15% . It has also reduced CRR by 100 bps i.e to 3% of NDTL(Net Demand and Time Liability) with effect from the reporting fortnight beginning March 28,2020 for a period of 1 year and permitted all commercial banks to allow a moratorium of 3 months on repayment of term loans outstanding as on March 1,2020.

Here are the highlights from Governer Shaktikanta Das's speech:

1. Reduction in Repo Rate

Repo rate was considerably reduced by 75 bps i.e to 4.4% as against 5.15% earlier with a 4-2 majority.

2. Fixed Rate and Reverse Repo Rate

Fixed rate and Reverse Repo rate were reduced by 90 bps i.e to 4% to make it unattractive for banks to park their funds with RBI. Thereby urging banks to utilize their funds for lending to more productive sectors of the economy. As for the month of March 2020 the figures reveal that banks have been parking close Rs.3,00,000 crore on daily average basis under reverse repo though Bank's credit has been steadily declining.

3. Gross Domestic Product(GDP)

The last quarter GDP rate for the year 2019-20 of 4.7% released by National Statistical Office(NSO) in Feb 2020 is now at risk considering the vulnerability of the economy with the pandemic.

4. Growth

The MPC refrained from releasing any growth and inflation numbers as they are highly contingent to the intensity, spread and duration of COVID-19 .

5. Inflation

Retail inflation has been running 30 bps above the RBI estimate as for the month of January and February 2020 mainly attributable to the onion price hike. Furthermore, the global crude oil price slump would work to ease the core inflation, However the pandemic could weaken the aggregate demand even further.

6. Liquidity Measures

• Long Term Repo Operations(LTRO)

 "Large sell-offs in the markets have intensified the redemption pressures. The RBI will conduct auctions for LTROs of upto 3 years tenure of appropriate sizes for a total amount of Rs.1,00,000 crore at a floating rate linked to the policy Repo Rate" quoted Governer Shaktikanta Das.

The RBI Governer emphasized that the liquidity availed by banks has to be deployed in Investment grade Corporate Bonds, Commercial Papers and Non Convertible Papers over and above the outstanding level of their investment in these bonds as on March 25,2020.

Eligible instruments comprises of both primary market issuance and secondary market purchases including Mutual Funds and NBFCs.

"Investment by banks in these facilities will be classified as Held to Maturity(HTM), even in excess of 25% of total investment permitted to be included in HTM portfolio"

The first auction of Rs.25,000 crore was to be held later in the day on March 27,2020.

• Cash Reserve Ratio(CRR)

CRR has been reduced by 100 bps i.e to 3% of NDTL with effect from reporting fortnight beginning March 28,2020. This reduction in CRR would release primary liquidity of Rs. 1,37.000 crore in the Banking System.

Furthermore, the requirement of minimum daily CRR balance maintenance has been reduced from 90% to 80% effective from 1st day of reporting fortnight beginning March 28,2020.

• Marginal Standing Facility(MSF)

The RBI has increased the accommodation under MSF from 2% of SLR(Statutory Liquid Ratio) to 3% with immediate effect applicable uptil June 30,2020 to provide comfort to the banking system amidst the volatile circumstances.

Hence, the above discussed liquidity measures of LTRO ,CRR, MSF would release liquidity of Rs. 3,74,000 crore in the system.

7. Regulation and Supervision Measures

• Moratorium on Term Loans

All Commercial Banks (including regional rural banks, small finance banks and local area banks) co-operative banks, all India Financial Institutions, NBFCs (including housing finance and micro finance institutions) are permitted to allow a moratorium of 3 months on repayment of term loans outstanding as on March 1,2020.

• Deferment of Interest on working capital facilities

Interest on working capital facilities outstanding as on March 1,2020 extended by banks stands deferred for a period of 3 months. The accumulated interest shall be paid after the end of the deferment period.

The moratorium on term loans and deferment of interest on working capital will not result in asset classification.

• Easing of working capital financing

In respect of working capital facilities sanctioned, lending institutions are allowed to recalculate the drawing power by reducing margins and/or reassessing the working capital cycle for the borrower.

8. Financial Markets(3rd measure)

• Banks are permitted to deal in offshore Non Deliverable Rupee Derivatives market
• ."The offshore Indian Rupee (INR) Derivative Market- the Non Deliverable Forward Market(NDF) has been growing rapidly in recent times. At present India Banks are not permitted to participate in this market , although the benefits of their participation in NDF is highly recognized. Accordingly Banks in India which run International Financial Service Centre (IFSC) Banking Units(IBU) are allowed to participate in NDF market with effect from June 1,2020" notified the Governer.
• After the last MPC meeting held in Feb 2020, RBI has injected liquidity of Rs. 2,80,000 crore which is equivalent to 1.4% of GDP. After the announcement of the various measures adopted by RBI it is expected that the liquidity injection in the economy works out to 3.2% of GDP.

Considering the various drawbacks in the Banking Sector; the Governer while concluding his speech has assured that Banking system is safe and sound, and has urged people to have faith and confidence in the Banking System.

We therefore conclude our article and hope that the audience can derive some useful information which may in turn help us to be more vigilant in the current circumstances.