Corona Virus Relief Package

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  • A big cut in the repo rate by 75 basis points and bringing it down to 4.4%, RBI has made it easier for entrepreneurs to take loans for working capital and for households for homes, vehicles etc. thus having an overall effect of reducing interest rates for the system. (Remember- Repo rate is the rate at which central bank lends money to commercial banks)
  • Cut in reverse repo rate by 90 basis points to 4%, RBI has made it unattractive for commercial banks to park money with the RBI and banks will be nudged to lend. ( Reserve Repo Rate is the rate at which RBI borrows funds from commercial banks)
  • Moratorium on Repayments of Loans: RBI has allowed banks to defer payment of Equated Monthly Installments (EMIs) on home, car, personal loans as well as credit card dues and also defer interest on working capital repayments by 3 months thus addressing the distress among firms as production is down.
  • By reducing the Cash Reserve Ratio (CRR) to 3%, RBI has freed up Rs 1.37 trillion for banks to lend. CRR has been chosen over SLR because CRR increases ‘primary liquidity’ with the banks in a better way. (CRR is the percentage of demand and time deposits that banks have to keep with the RBI)
  • Targeted long-term repo operations: RBI will lend a total of Rs 1 trillion money to banks that can be invested in bonds and other forms of lending instruments thus providing financing to credit institutions.
  • Rs 1.37 trillion will be provided under the emergency lending window called the marginal standing facility or MSF, thus helping banks to borrow 3% of their deposits, up from the current 2%. (MSF- the rate at which the banks can borrow overnight funds from RBI against government securities. MSF is a short term borrowing scheme)

Conclusion 

  • The backbone of any country’s development lies in its thriving economy and RBI by coming out with this relief package, on urgent priority is trying to pull it out of the current bleak situation which Indian economy is facing today.  As no one knows how long this crisis will last or what will be the real extent of the damage, this bailout package of RBI is a virus-fighting stimulus to tackle COVID-19 or Corona virus crisis, thus satisfying the quote “Tough times never last, only tough people and tough institutions do.” 

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