Coronavirus Outbreak: Reserve Bank of India reduces reverse repo rate by 25 bps to 3.75% from 4%
Under reverse repo operation, the RBI borrows money from banks by lending securities.
The Reserve Bank of India (RBI) cut the reverse repo rate by 25 basis points to 3.75 percent against 4 percent earlier. All key rate, including repo rates unchanged.
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"On April 15, Rs 6.91 crore surplus from the system. To allow banks to use this surplus into economy, reverse repo rate is being reduced by 25 bps from 4 per cent to 3.75 per cent under Liquidity adjustment facility (LAF)," said RBI Governor Shaktikanta Das while addressing the media on Friday.
Under reverse repo operation, the RBI borrows money from banks by lending securities. The interest rate paid by RBI in this case is called the reverse repo rate.
Das also said that the 90-day NPA norm will not to apply on to the moratorium granted on the existing loans by banks.
He also mentioned that the banks will not make any further dividend payout in view of the financial difficulties arising from the COVID-19 crisis.
He further said that the LCR requirement of banks has been brought down to 80 per cent from 100 per cent. It will be restored in phases by April next year.
The RBI Governor stated that the loans given by NBFCs to real estate companies will get similar benefit as given by the scheduled commercial banks.
"The ways and means limit of the States have been raised to help them, not to bunch up their borrowing plans," said the RBI Governor.
He also said the new measures aim to maintain adequate liquidity in the system, facilitate bank credit flow and ease financial stress.
He further said that economic activity had come to a standstill during the lockdown.
In an address to the media he said, "LTRO-2.0 will involve Rs 50,000 crore to begin with. Rs 50,000 crore special finance facility will be provided to financial institutions such as NABARD, SIDBI and NHB.
He also stated,"Surplus liquidity in the banking system has increased substantially as a result of the central bank's actions."
He explained that the contraction in exports in March, estimated at 34.6 per cent, is more severe than global financial crisis of 2008-09.
"CPI inflation declined in March and the inflation is on a declining trajectory," said Das.
"Automobile production and sales have declined sharply in March. Electricity demand has fallen sharply. The impact of COVID-19 has not been captured in the IIP data for February," Das said.
He said that the IMF's projections of 1.9 per cent of the GDP growth for India is the highest among the G20.
He lauded banks and financial institutions and said that they have risen to the occasion to ensure normal functioning during the coronavirus outbreak.
He also said that the RBI is monitoring the situation that is developing due to the COVID-19 outbreak and will use all its tools to deal with the pandemic fallout.
This is the second time that the governor will be addressing the media since the nationwide lockdown was imposed from March 25.
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