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Relief to Middle Class & Industry -RBI Announces Major Steps to Combat the Impact of Covid-19

rbi announces major steps

The Reserve Bank of India today stepped in to give a boost to the Indian economy in the face of the adversities arising from Covid-19 pandemic. As a logical successor to the relief package announced by FM Nirmala Sitharaman, the RBI moved in to give relief to the industry, middle class and financial sector at large.

RBI Governor Shakitkanta Das noted that the RBI is aware of the threats to Indian economy. Calling it unprecedented times, RBI Governor said the future outlook is uncertain and negative and that the aggregate demand may weaken affecting the GDP growth, thus underlining the necessity of the relief measures.

Here are the key highlights of the relief measures announced

Rates Slashed
  • Repo rate has been reduced by 75 basis points to 4.4%. This is the largest reduction in recent times. This will ensure that the interest rates on loans reduce for consumers.
  • Reverse repo rate has been reduced by 90 basis points to 4%. This will prevent banks from parking money with the RBI, and compel them to lend the surplus money to people.
  • The Cash Reserve Ratio (CRR), the cash that banks keep with RBI as a safety measure, has been reduced from 4% to 3%, freeing ₹1.37 lakh crores to be lent out.
  • Minimum daily CRR balance has been reduced from 90% to 80% till 30th June 2020.
  • The rate of borrowing under the marginal standing facility (MSF) provisions for banks has been increased from 2 per cent to 3 per cent with immediate effect. This is intended to provide comfort to the banking system by allowing it to avail an additional ₹ 1,37,000 crore of liquidity under the LAF window in times of stress at the reduced MSF rate announced in the MPC’s resolution.

In a nutshell, banks will now lend more money at cheaper interest rates- benefit for industry and common people. Your home loan/car loans are set to become cheaper.

Injecting Liquidity in Markets
  • RBI has announced Long Term Repo Operations worth ₹1 lakh crore
  • RBI also stated that it is already carrying out Open Market Operations worth ₹25,000 crore to inject liquidity in markets
Relief for Middle Class and Small Enterprises
  • A 3-month moratorium has been imposed on payment of instalments of all the term loans outstanding as on 31st March 2020. This may reduce the EMIs for the middle class.
  • Relieving the MSME sector, interest on working capital facilities will be deferred by 3 months.
  • Rescheduling of payments will not qualify as a default, thus preventing a hit to the credit history of the borrowers.

Overall, a total amount of ₹3.74 lakh crore has been injected by today’s announcement totalling to 3.4% of India’s GDP. This is over and above the ₹1.7 lakh crore relief package announced by Finance Minister.

Modi government is going out all guns blazing to tackle the Covid-19 epidemic.