RBI announces more measures to inject liquidity

The Reserve Bank of India (RBI) today announced a second set of measures to combat the sudden economic challenges that have arisen due to the spread of Covid-19. The measures would unlock an additional capital of Rs 50,000 crore for banks and micro-finance institutions (MFIs) at this moment of crisis. The RBI also reduced the reverse repo rate—the rate at which the it borrows money from the banks—to 3.75 per cent from 4 per cent, a move that will discourage banks to park cash with the central bank.

RBI Governor Shaktikanta Das said that India is among the few countries projected to register a positive growth rate amid the Covid-19 crisis. The central bank expected India's growth rate to clock 7.4 per cent in 2021-22, once economic activities resume after the slowdown.

While the central bank today left the repo rate—the rate at which banks borrow from the central bank—unchanged, it had already slashed this policy rate by 75 basis points to 4.4 per cent last month.

The RBI has provided another Rs 50,000 crore for refinancing all-India financial institutions. Of this, Rs 25,000 crore is directed to Nabard, Rs 15,000 crore to SIDBI, and Rs 10,000 crore to National Housing Bank (NHB).

These measures are aimed at softening the impact Covid-19 impact on the financial markets, Das said, adding that the central bank was closely monitoring the situation. "Our mission is to do whatever it takes to flatten the epidemiological curve of the coronavirus pandemic."

Banks have also been barred from declaring any dividend till September, a move that will boost their capital.

Das assured that the RBI will maintain adequate liquidity in system and also facilitate and incentivize bank credit flow. He added that retail inflation could go down to about 4 per cent in the second half of 2020-21.

Sai Venkateshwaran, Partner and Head, CFO Advisory, KPMG India, said in a statement said the measures announced by RBI will “provide some of the much needed liquidity for NBFCs.”.