New Delhi, March 27: The Reserve Bank of India (RBI) announced a huge 75 basis points rate cut on March 27, bringing it to 4.40 percent from 5.15 percent. Announcing a series of measures to ensure liquidity and stability in the country’s financial system as India battles coronavirus, RBI Governor Shaktikanta Das said the monetary policy committee (MPC) met almost a week ahead of the scheduled date.
1. The RBI slashed repo rate by 75 bps to 4.40 percent while the reverse repo rate, which sets the floor of the liquidity adjustment facility (LAF), was reduced by 90 bps to 4 percent.
2. Liquidity measures : The RBI decided to conduct auctions of long-term repo operation (LTRO) of up to three-year tenure of appropriate sizes for a total amount up to Rs 1 lakh crore at a floating rate linked to the policy repo rate.
3. The liquidity availed by banks under the scheme has to be deployed in investment-grade corporate bonds, commercial papers and non-convertible debentures, over and above, the outstanding level of those investments in these bonds, as on March 25, 2020.
4. Investments made by the banks to be classified as held-to-maturity (HTM). Even that in excess of 25 per cent of the total investment permitted to be included in HTM portfolio.
5. The RBI has reduced the Cash Reserve Ratio by 100 basis point from 90 percent to 80 percent, effective March 28. This is a one-time dispensation available up to June 26, 2020.
6. CRR cut would release primary liquidity of about Rs 1.37 lakh crore uniformly across the banking system in proportion to liabilities of the constituents rather than in relation to their holding of excess SLR.
7. All lending institutions have been permitted a three-month moratorium on payments of instalments of all term loans outstanding as of March 1, 2020.
8. Deferment of interest on working capital facilities: Lending institutions can defer by three months payment of interest outstanding as on March 1 on working capital facilities sanctioned in the form of cash-credit and overdraft and such.
9. "The moratorium on term loans and the deferment of interest on working capital will not result in asset classification downgrade", the RBI governor said.
10. In respect of working capital facilities sanctioned in the form of cash credit, overdraft, lending institutions are allowed to recalculate drawing power by reducing margins or by reassessing the working capital cycle for borrowers.
The RBI governor said the central bank was closely monitoring the situation and will step in whenever required. “Let me assure you that the RBI is at work in mission mode. We have been monitoring the evolving financial market and the macroeconomic conditions and calibrating its operations to meet any need for additional liquidity support as well as to take other measures if warranted,” said the RBI governor.