“It is when the horizon is the darkest and human reason is beaten down to the ground that faith shines brightest and comes to our rescue”, quoting the father of the nation, Governor of RBI said that as a nation we must have faith in India’s resilience and capacity to overcome all odds.“The regulatory and developmental measures which we announce today, they are being done to complement and amplify the reduction in the policy repo rate decided by the MPC” RBI governor Shakti Kant Das announced on Friday morning in an emergency conference. He has also told earlier that RBI has been constantly monitoring the situation; it has not waited for any formal announcements by the officials and has been taking policy measures.
The repo rate has been reduced by 40 basis points to 4%; in addition to that reverse repo rate was also reduced by 40 basis points to 3.35 points. He said that on the quantum of reduction the MPC voted with a 5-1 majority.
It is the second time when RBI has gashed the key policy rated of the economy to counter the effect of the coronavirus in the economy. “The decision of the MPC (in the meeting held in February 2020) to reduce the policy repo rate and to maintain the accommodative stands of the monitory policy provides the opportunity to the RBI to announce certain additional measures against the backdrop of a deteriorating outlook for economic activity”, as told by the Governor.
As stated by the Governor the goals are-
- To keep the financial system and financial markets sound, liquid and smoothly functioning
- To ensure access to finance to all
- To preserve financial stability
The measures announced by the governor today can be broadly set forth under 4 categories:
- Measures to improve the functioning of markets and market participants
- Measures to support export and import
- Efforts to further ease financial stress by providing relief of debt services
- Steps to ease the financial constraints faced by the state government.
For the market functioning the RBI has earlier announced a special refinance facility of 15thousand crore to SIDBI at RBI’s policy repo rate for a period of 90 days for the lending and refinancing operation of SIDBI, in the conference he said that it has been decided to roll over the facility for another 90 days.
Enunciating the measures, he pointed out that to alleviate the genuine difficulties faced by the exporters; it has been decided to accede the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by the bank for existing 1 year to 15 months. About the liquidity facility of the Exim Bank of India, he said that for the Exim Bank to meet its foreign currency requirements, it is decided to extend the line of credit of Rs.15000 crore to the Exim of for a period of 90 days.
To provide greater flexibility to importers for managing their operating cycle in the COVID-19 pandemic, it has been decided to extend the period for completion of outward remittances against “normal” imports, it means excluding the import of gold diamond and other precious metals into India from 6 – 12 months from the date of shipment of such imports made on or before July 31st, 2020.
Owing to the extension of the lockdown, the RBI has decided to extend the timeline of measures or moratorium on terms loans, working capital, etc. which were announced by the Governor on the 27th of March and on 17th April by three months from 1st June till 31st August. The lending institutions are being permitted to restore the margins for working capital to their original levels by 31st March 2020. To decrease the difficulty of the banks in raising resources from capital markets, the group exposure limit of banks is being increased from 25% to 30% of the eligible capital base. The increased limit will be applicable up to June 30th, 2021.
To facilitate the state government, it has been decided to relax the rules governing the withdrawal from the consolidated sinking fund and at the same time ensuring that depletion of the fund balance is done prudently together with the normally permissible withdrawal to ease the bond redemption pressure on the state governments.
Concluding his speech Mr. Das said “today’s trials may be traumatic, but together we shall triumph”.