The Reserve Bank of India (RBI) will be infusing Rs 3.74 lakh crore liquidity into the financial system through various measures in the wake of coronavirus pandemic. RBI has already injected liquidity of Rs 2.8 lakh crore in financial markets through various instruments, which equal to 1.4 percent of the gross domestic product (GDP).
Along with recent liquidity measures equal to 3.2 percent of GDP, RBI will take continuous measures to ensure liquidity in the system. As part of the liquidity infusion measures, the central bank announced a massive 75 basis points cut in repo rates to revive economic growth which has been hit hard by COVID-19 outbreak. The reverse repo rate has been slashed by 90 basis points to four percent.
Besides, the cash reserve ratio (CRR) of all banks has been reduced by 100 basis points to three percent from four percent, with effect from the fortnight beginning 28 March 2020 for a period of one year. This is expected to release Rs 1.37 lakh crore liquidity in the market. RBI will also conduct repo operation of up to Rs one lakh crore to inject liquidity into the market. This has been done to allow banks to lend more to business rather than deposit it with RBI.
These measures will enable RBI to have better control on the liquidity situation in the system and mitigate the negative effect of COVID-19 on the economy.
Among others, RBI announced that all banks, lending institutions may allow a three-month moratorium on all loans. Besides, lending institutions are allowed to defer interest on working capital repayments by three months.