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RBI action against COVID-19: cuts Repo Rate, CRR and reverse repo rate

RBI: Reserve Bank of India

The Reserve Bank of India (RBI) is India's central bank, which controls the issue and supply of the Indian rupee. RBI is the regulator of entire Banking in India. RBI plays an important part in the Development Strategy of the Government of India.

RBI regulates commercial banks and non-banking finance companies working in India. It serves as the leader of the banking system and the money market. It regulates money supply and credit in the country. The RBI carries out India's monetary policy and exercises supervision and control over banks and non-banking finance companies in India. RBI was set up in 1935 under the Reserve Bank of India Act, 1934.

Established: 1st April, 1935
Act: Reserve Bank of India Act, 1934
Currency: Indian rupee
Headquarters: Mumbai, Maharashtra
Governor: Shaktikanta Das

Structure

The central board of directors is the main committee of the central bank. The Government of India appoints the directors for a four-year term. The board consists of a governor, and not more than four deputy governors; four directors to represent the regional boards; two — usually the Economic Affairs Secretary and the Financial Services Secretary — from the Ministry of Finance and ten other directors from various fields.

Policy Rate and Reserve Ratio

Policy Repo Rate: The rate of interest charged by RBI while they repurchase the securities is called Repo Rate.

RBI reduces the Repo rate by 0.75% and the new Repo rate is 4.40%.

The repo rate has been reduced by 75 basis points from 5.15 percent to 4.4 percent.

Reverse Repo Rate: 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.

RBI reduces reverse Repo rate by 0.90% and the new reverse Repo rate is 4%.

The reverse repo rate reduced by 90 basis points to 4 percent to incentivize banks to lend.

Cash Reserve Ratio (CRR): Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.

Cash Reserve Ratio of all banks reduced by 100 basis points to 3 percent of net demand and time liabilities with effect for one year from March 28. CRR has been cut to unlock liquidity.

Statutory Liquidity Ratio (SLR): Statutory Liquidity Ratio or SLR is the minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities. It is basically the reserve requirement that banks are expected to keep before offering credit to customers.

Rate	Old	New	Cut
Policy Repo Rate	5.15%	4.40%	0.75%
Reverse Repo Rate	4.90%	4.00%	0.90%
Cash Reserve Ratio (CRR)	4.00%	3.00%	1.00%
Statutory Liquidity Ratio (SLR)	18.25%	19.50%	0.00%

The RBI Governor has assured that the Indian Banking System is safe and sound and there is no need for the depositors of private and commercial banks to worry about the safety of their deposits. He said that COVID-19 related volatility impacted the share prices of the banks in the recent past, resulting in panic withdrawal of deposits from a few private sector banks. However, this time there is no need to worry and indulge in such withdrawals.

The RBI Governor’s address comes just a day after Union finance minister Nirmala Sitharaman unveiled the new economic package to deal with the coronavirus impact on the economy and provide relief to the poor and most vulnerable. The measures worth about Rs 1.70 lakh crore is expected to reduce the impact of the outbreak in the economy and on people.