RBI announces nine additional measures for strengthening the Economy

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News:Reserve Bank of India(RBI) has announced several measures for strengthening the Economy in the uncertain times ushered in by the COVID-19 pandemic.

Facts:

Key measures:

  • Repo Rate: It is the rate at which the RBI lends money to the banks for a short term.It has been reduced by 40 basis points from 4.4% to 4.0%.
  • Reverse Repo Rate: It is the short term borrowing rate at which RBI borrows money from banks.It has been reduced from 3.75% to 3.35%.
  • Marginal Standing facility: It is a window for banks to borrow from the Reserve Bank of India in an emergency situation when interbank liquidity dries up completely.It has been reduced from 4.65% to 4.25%.
  • Consolidated Sinking Fund: States have been allowed to borrow more from Consolidated Sinking Fund which is being maintained by state governments as a buffer for repayment of their liabilities.
  • Extension of Moratorium on Loan Repayments: The lending institutions have been permitted to extend the moratorium (suspension) on term loan instalments by another three months till 31st August, 2020.
    • A term loan is a loan from a bank for a specific amount that has a specified repayment schedule and either a fixed or floating interest rate.
  • Voluntary Retention Route(VRR): Rules have been relaxed under VRR which is an investment window provided by RBI to Foreign Portfolio Investors to provide easier rules in return for a commitment to make higher investments.
  • Special Refinance Facility: RBI had announced a special refinance facility of ₹15,000 crore to SIDBI at RBI’s policy repo rate for a period of 90 days.This facility has now been extended by another 90 days.
  • Export Credit: The maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks to exporters has been increased from the existing one year to 15 months for disbursements made up to July 31,2020.
  • Line of Credit: A line of credit of ₹15,000 crore will be given to the EXIM Bank, for financing India’s foreign trade.The loan facility has been given for a period of 90 days, with a provision to extend it by one year.
  • Import Payments: The time period for import payments against normal imports into India has been extended from six months to twelve months from the date of shipment.
  • Maximum Credit: The maximum credit which banks can extend to a particular corporate group has been increased from 25% to 30% of the bank’s eligible capital base.