RBI cuts reverse repo rate and announces steps to boost liquidity

Team SoOLEGAL 17 Apr 2020 3:08pm

RBI cuts reverse repo rate and announces steps to boost liquidity

NEW DELHI: The RBI today reported a second tranche of economic liquidity boost with a 25-point reverse repo reduction, reducing it from 4 percent earlier to 3.75 percent. The move was taken to allow banks to lend more.A TLTRO 2.0 of Rs 50,000 crore specifically targeting NBFCs has been announced.

The RBI also announced that there will be a relaxation in asset classification norms. For accounts which have used the moratorium facility, the moratorium period will be exempt from the RBI's 90-day NPA classification criteria.The RBI has further stated that it will continue to track the situation closely and that its goal is to keep the financial system running smoothly.

Such liquidity steps are above and beyond the 3.74 lakh liquidity boost declared in the last week of March. These included a Rs One lakh crore Targeted Long Term Repo Operations (TLTRO) window for banks directly to invest in corporate bonds and commercial papers. It also reduced the repo rate by 75 basis points and the reverse repo rate by a greater margin of 90 basis points, rendering it less profitable for banks to park RBI funds. It also lowered the CRR by 100 basis points, leaving more money in the bank's pockets to lend to customers.
It had also declared a three-month moratorium on term loans but many NBFCs were unable to meet their obligations as various banks interpreted the moratorium requirements differently.

Tagged: RBI   economic liquidity   Repo_Rate   financial system   TLTRO   RBI funds  
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