RBI cuts Reverse Repo Rate to Reduce COVID-19 Impact on Businesses

As we all aware that the world is facing the threat of the Novel Coronavirus pandemic, better known as COVID-19. The impact of the COVID-19 infection has reached a decisive point, due to which the Indian government is impelled to enforce a complete lockdown all over the country till 3rd May 2020. This is to mitigate the danger of the COVID-19 infection.

RBI had recently proposed to cut the Cash Reserve Ratio & Repo Rate in order to ease the credit policy. Now, the Governor of Reserve Bank of India (RBI) Sh. Shaktikant Das held a press conference on 17th April 2020. He has announced the reduction of the reverse repo rate to ensure that more money comes into the hands of the general public. 

1.  How much is the reverse repo rate reduced?

The reverse repo rate has been reduced by 25 basis points (bps) to 3.75%. However, the Repo rate has been already reduced by 75 bp to 4.4%, and shall not be reduced any further.

Also read- RBI cuts Repo Rate & CRR

2. What is the reverse repo rate?

Reverse repo rate refers to the Interest rate at which the central bank (RBI) borrows money from the commercial banks. The central bank borrows money from commercial banks in order to control the money supply in the nation.

3. How will a reduction in reverse repo rate help Indian businesses?

As the reverse repo rate is reduced, now the commercial banks would be lending less money to the central bank, as they would gain comparatively more margin by lending money to the general public. 

• This would bring more money into the hands of the general public, and Indian businesses would be able to borrow more money from the bank. 

• This will ultimately tackle the problem of cash crunch in businesses, which is much needed during the crisis caused by the lockdown due to COVID-19.

• However, the businessmen need to do ITR filing for availing a business loan from a bank. Here too, the government has granted relief by further extending the due-date of ITR filing till 30th June 2020.

4. What other measures have been taken to control the COVID-19 crisis?

Apart from the above, other steps taken by RBI to tackle the financial crisis due to COVID-19 lockdown include:-

• The liquidity coverage ratio (LCR) requirement of the commercial banks is reduced to 80% from 100%. The LCR refers to the ratio of money of the banks are required to hold as high-quality liquid assets (HQLA) e.g. short-term government debts.

• For the time being, the banks are not allowed to make any further dividend payout.

• ₹25,000 crores shall be granted for NABARD 

• ₹15,000 crores shall be granted to Sidbi.

• 10,000 crore shall be granted to NHB (National Housing Bank)

These are a few reliefs granted by RBI to Indian businesses to reduce the impact of COVID-19.

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