In a bid to maintain stability in the financial system in the wake of coronavirus pandemic, Reserve Bank of India (RBI) governor Shaktikanta Das on Friday said that Rs 3.74 lakh crore liquidity will be injected into system through various measures.
Shaktikanta Das said that the RBI has already injected liquidity of Rs 2.8 lakh crore in the financial markets through various instruments, which equal to 1.4 per cent of GDP. "Along with today's measures liquidity measures equal to 3.2 per cent of GDP. RBI will take continuous measures to ensure liquidity in the system," Das said while announcing the decisions taken by the Monetary Policy Committee (MPC).
As part of liquidity infusion measures, the central bank announced a massive 75 basis points cut in repo rates to revival economic growth which has been hit hard by the COVID-19 outbreak. The reverse repo rate has been slashed by 90 basis points to 4 per cent.
Besides, the cash reserve ratio (CRR) of all banks has been reduced by 100 basis points to 3 per cent from 4 per cent, with effect from the fortnight beginning 28 March for a period of 1 year. This is expected to release Rs 1.37 lakh crore liquidity in the market, the RBI chief said.
CRR is the percentage of deposits that banks have to mandatorily keep with the central bank. The reduction in CRR has been announced after seven year. It was last reduced in February 2013 by 25 basis points.
The central bank will also conduct repo operation of up to Rs 1 lakh crore to infect liquidity into the market.
Das said these measures will result in total liquidity injection of Rs 3.74 lakh crore to the system. This has been done to allow banks to lend more to business rather than deposit it with RBI. These measures will enable the RBI to have better control on the liquidity situation in the system and mitigate the negative effect of COVID-19 on the economy.
He also assured the public that the banking system in India was safe.
Among others, the RBI announced that all banks, lending institutions may allow a three-month moratorium on all loans. Besides, banks lending institutions are allowed to defer interest on working capital repayments by three months.