30th October 2020

Confidant Classes

A Premier Judicial Service Coaching

RBI PRESS BRIEFING: 17.04.2020

RBI Governor Shaktikanta Das has addressed the media second time during current lockdown; this briefing comes amid the steep fall in the rupee and ongoing volatility in other segments of the financial markets. This was the second time that the governor addressed the media since the nationwide lockdown was imposed from March 25. On March 27, RBI held cut the repo rate by a record 75 basis points. The repo rate was reduced to a 15-year-low of 4.40 per cent and was also the steepest cut since October 2004. The Reserve Bank of India cut the cash reserve ratio by 100 bps to 3 per cent apart from announcing various measures to boost liquidity in the system.

Economic activity came to standstill during the lockdown, Contraction in exports in March 2020 at 34.6%, turned out to be much more severe than during the Global Financial Crisis. However, amidst all this, the level of Forex Exchange Reserves which we have continue to be robust.

IMF Economic Counsellor has named it ‘The Great lockdown’ estimating cumulative loss to global GDP over 2020-21 at around 9 trillion US dollars, which is greater than the economies of Japan & Germany combined. India’s foreign exchange reserves continue to remain robust.

For 2020-21, International Monetary Fund projects sizable reshaped recoveries, close to 9 percentage points for the global GDP. India is expected to post a sharp turnaround and resume its pre-Covid, pre-slowdown trajectory by growing at 7.4% in 2020-21. Since March 27, the macroeconomic and financial landscape has deteriorated precipitously in some areas, but light still shines through bravely in some others.

On April 14, International Monetary Fund (IMF) released its global growth projections revealing that in 2020, the global economy is expected to plunge into the worst recession since ‘The Great Depression”. New measures aimed at maintaining adequate liquidity in system, facilitate bank credit flow, ease financial stress.

RBI Governer Shaktikant Das said

Some highlights:

  • Loans given by NBFCs to real estate companies to get similar benefit as given by scheduled commercial banks.
  • LCR requirement of banks brought down to 80% from 100%; to be restored in phases by April next year.
  • Liquidity coverage ratio (LCR) The liquidity coverage ratio requires banks to hold enough high-quality liquid assets (HQLA) – such as short-term government debt – that can be sold to fund banks during a 30-day stress scenario designed by regulators.
  • It has been decided to provide special refinance facilities for an amount of Rs 50,000 crore to National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), and National Housing Bank (NHB) to enable them to meet sectoral credit needs.
  • RBI Governor says, “90-day NPA norm not to apply on moratorium granted on existing loans by banks.
  • Banks not to make any further dividend payout in view of financial difficulties arising from Covid-19.
  • It has been decided to reduce the fixed reverse repo rate under liquidity adjustment facility (LAF) by 25 basis points from 4% to 3.75%, with immediate effect.  Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country. A liquidity adjustment facility (LAF) is a tool used in monetary policy, primarily by the Reserve Bank of India (RBI) that allows banks to borrow money through repurchase agreements (repos) or for banks to make loans to the RBI through reverse repo agreements.
  • RBI governor announces Rs 50,000 crore booster package for small and medium-sized industries to recover from the lockdown. RBILTRO, monetary policy, long-term repo operation, liquidity, policy rates. In the last monetary policy, instead of cutting the policy rates, the Reserve Bank of India (RBI) introduced a tool called long-term repo operation (LTRO) to inject liquidity in the system, as well as to ensure transmission of rates.
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