MUMBAI (Maharashtra): Reserve Bank of India (RBI) governor Shaktikanta Das March 27 announced a massive 75 basis points cut in repo rates as a measure to counter the economic slowdown caused by the COVID-19 pandemic.
The reverse repo rate has been cut by 90 basis points to 4 per cent. “There were some differences in the quantum of reduction and MPC voted by 4:2 majority to reduce policy repo rate by 75 bps to 4.4 per cent,” the RBI Governor said in the press meet. Das said this has been done to make it unattractive for banks to passively deposit funds with the RBI and instead lend it to the productive sectors.
The RBI governor has said that all banking institutions can offer a three-month moratorium on all loans for a period of three months. The RBI has also allowed banks to restructure the working capital cycle for companies without worrying that these will have to be classified as NPA.
The Central Bank has offered Rs 11,772 crore to banks through a 12-day variable rate repo auction.
Before the auction, the RBI enhanced the amount of auction to Rs 50,000 crore from Rs 25,000 crore, announced earlier.
In the auction, the central bank received Rs 11,772 crore of bids and allocated the entire amount at a cut-off rate of 5.16 per cent. RBI had advanced this auction to today from March 30 due to the evolving financial conditions and taking into account the impact of disruptions caused by COVID-19.
It will conduct another variable term repo auction of Rs 25,000 crore on March 31.
This announcement is big since the economy is under hardship and reeling under job losses and industrial shutdown. The three-month moratorium will permit banks to avoid a large onset of NPAs during the 21-day lockdown and keep their books healthy.
For borrowers too, the three-month moratorium will be helpful to ease the burden on their savings and avoid the fear of turning defaulters. This is the big stimulus the small industry and working middle class have been waiting for.
Measures Applauded Unanimously:
Indian shares opened higher on March 27, with the Nifty opening above the psychologically important 9,000-mark. But the market is trading at day’s low with Sensex up 518.45 points or 1.73 per cent at 30465.22, and the Nifty gained 215.65 points or 2.5 per cent at 8857.10 at 10:15 hrs IST.
The top gainers included Axis Bank and IndusInd Bank being the top gainers, jumping 9-11 per cent each. They were followed by IDFC First Bank, RBL Bank, YES Bank, Kotak Mahindra Bank and HDFC Bank.
Also welcome @RBI governor @DasShaktikanta’s statement: “The macro economic fundamentals of the Indian economy are sound, and in fact stronger than what they were in the aftermath of the global financial crisis of 2008-09.” And his timely reminder to #StayCleanStaySafeGoDigital.
— Nirmala Sitharaman (@nsitharaman) March 27, 2020
“The RBI has surpassed expectations by delivering more than what the market anticipated, and its promise to ‘do whatever it takes’ has come good. The steps to ease working capital pain, reduce liquidity costs and provide a moratorium on term loans will alleviate stress across various sectors. We continue to see rates dropping to 3.50% by August 2020.” – Rahul Bajoria, Chief India Economist, Barclays
“RBI has announced massive liquidity boosting measures including cuts in repo rate, reverse repo rate and CRR. The Governor has also hinted about using unconventional methods if needed. In the present scenario, considering the weak sentiments in the economy, the effectiveness of monetary stimulus will be limited. Three-month moratorium on loans is a welcome step.” – Deepthi Mary Mathew, Economist at Geojit Financial Services
Cut in REPO,CRR&MSF to inject Rs 3.74 Lakh Cr of Liquidity
Last Tranche of #CapitalConservationBuffer waived
— Sanju Verma (@Sanju_Verma_) March 27, 2020
The RBI’s press conference comes a day after Finance Minister Nirmala Sitharaman announced a Rs 1.07 lakh crore relief package for the poor.
The economy has been battered by COVID-19 and governments across the globe have taken measure to combat the impact. While the finance minister’s announcements were a mix of measures, including direct cash transfers and distribution of free food grains for three months to help the economically weaker sections, the RBI governor is expected provide some relief to corporate India as well.