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As all have been saying, RBI has ticked all the boxes. Whatever weapons it had in its arsenal to combat the virus, it has used. Every single weapon. Now it is up to each department to do its job – health, finance, state govts. RBI has done its job and superbly too!

Under normal circumstances, the market would have shot through the roof; we might have needed an Upper Circuit. But the reality today is that despite all that which RBI or the Government gives, the Virus is very much there between us and we do not know how much longer it will stay, how many more people it will attack and take away. Till the virus goes, as we keep on saying, fear factor, the fear of the unknown will be the omnipresent emotion, leaving little room for optimism.

But the good news here – surely the virus will go, hope for sooner than later. And once it goes, all that which the RBI gave today, will be the tailwind for the financial sector and the economy to remain stable and grow. Well, grow might be too optimistic but surely, these measures will reduce the impact which the virus leaves behind.

The best move for the common people – the 3 -month moratorium on all loans – this is effective 1st April for loans outstanding as at 1st March 2020. So no EMIs to be paid till 30th June. This will ensure that small and medium enterprises will not stop paying salaries – they may cut the pays but at least people will get money to survive. This is a huge relief. People might not be rushing to the banks now for loans but they will, once this tides over. RBI has given enough incentives for the growth to pick up after the virus, while ensuring stability during the virus. Now that’s a win-win.

Let us understand – this is a war we are facing and in war times, everything, including your life is uncertain. But we need to stay tough and look ahead, see the picture of us once again leading a normal life, going about our routine and working. At that time, these measures will help.

It is reassuring to know that the Govt and the RBI is watching and trying, in its own way to reduce the pain. Lets stay with that emotion….

Highlights of RBI’s bazooka:

MPC voted with a 4-2 majority to reduce the policy rate by 75 basis points to 4.4%

Reverse repo rate, which sets the floor of the liquidity adjustment facility (LAF) corridor, was reduced by 90 basis points to 4%

It has been decided to widen the existing policy rate corridor from 50 bps to 65 bps and under this:

  1. Reverse repo rate under the liquidity adjustment facility (LAF) would be 40 bps lower than the policy repo rate, as against existing 25 bps.
  2. The marginal standing facility (MSF) rate would continue to be 25 bps above the policy repo rate.

All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020.

In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the deferment period.

To conduct auctions of targeted term repos of up to three years tenor of appropriate sizes for a total amount of up to Rs.1,00,000 crore at a floating rate, linked to the policy repo rate - liquidity availed under the scheme by banks has to be deployed in investment grade corporate bonds.

Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25% of total investment permitted to be included in the HTM portfolio.

Exposures under this facility will also not be reckoned under the large exposure framework.

The first auction of Rs.25,000 crore will be conducted today

Reduction in Cash Reserve Ratio (CRR) of all banks by 100 bps to 3% of net demand and time liabilities (NDTL) with effect from the reporting fortnight beginning March 28, 2020 for a period of one year.

Reduction in the requirement of minimum daily CRR balance maintenance from 90% to 80%, effective from the first day of the reporting fortnight beginning March 28, 2020. This is a one-time dispensation available up to June 26, 2020.

To increase the accommodation under the marginal standing facility (MSF) from 2% of the statutory liquidity ratio (SLR) to 3% with immediate effect. This measure will be applicable up to June 30, 2020.

To defer the implementation of Net Stable Funding Ratio (NSFR), by six months to October 1, 2020.

To defer implementation of the last tranche of 0.625% of the capital conservation buffer (CCB) from March 31, 2020 to September 30, 2020.

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