The apex bank took all possible steps to infuse liquidity in the already distressed economy. During the pandemic, the RBI has come up with various measures to fight the battle. The RBI, which has ensured that there is enough liquidity in the market, has resorted to Long Term Repo Operation (LTRO), which provides one to three year lending to banks at the current repo rate and even accepting government securities. Within the period of lockdown the RBI has slashed the repo rate by 115 bps.
So let us look at what are the various steps that have been taken by the apex bank.
Firstly, on March 27, the RBI announced repo rate cut by 75 bps and reduction in cash reserve ratio by 100 bps. And also announced an LTRO to infuse Rs 1 lakh crore liquidity and other measures that included a three-month moratorium on all loan repayments till May 31.
On April 17, the reverse repo rate was slashed by 25 bps and other measures included a special finance facility of Rs 50000 crore of NABARD, SIDBI, and National Housing Bank, a targeted LTRO of Rs 50,000 crore and changes in NPA classification.
On April 27, it announced Rs 50,000 crore special liquidity facility for mutual funds.
On May 22, it announced repo rate cut by another 40 bps, extending the three-month loan moratorium till August 31 and allocated Rs 15,000 crore to EXIM Bank to support trade.
Impact of the steps taken by RBI
As RBI has maintained its accommodative stance, which signals that it can go for further rate cuts if needed. The steps taken were to address the liquidity issue in the economy. But all the steps taken by the RBI in the aftermath of coronavirus crisis have resulted in liquidity surplus in the banking system, which means there is enough money in the banks but there are very few takers. As a result, banks have parked Rs 7.29 lakh crore worth of funds with the apex bank because in these times of crisis when all economic activities have come to standstill no company and business are borrowing money from the bank.