RBI announces second set of measures to preserve financial stability

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News:The Reserve Bank of India has come out with the second set of monetary policy measures to preserve financial stability after the government has extended the lockdown.

Facts:

  • Reverse Repo Rate:It is the short term borrowing rate at which RBI borrows money from banks.It has been cut to 3.75% from 4%.
  • Liquidity Coverage Ratio(LCR): It refers to the proportion of highly liquid assets held by financial institutions to ensure their ongoing ability to meet short-term obligations.The LCR requirement has been reduced to 80% from 100%.
  • Targeted Long Term Repo Operations(TLTRO): It is a tool that lets banks borrow one to three-year funds from the RBI at the existing repo rate by providing government securities with similar or higher tenure as collateral.It is called ‘Targeted’ LTRO as in this case, the RBI wants banks opting for funds under this option to be specifically invested in investment-grade corporate debt.
  • Under this, RBI would conduct TLTRO 2.0 for an amount of Rs 50,000 crore and the banks have to lend at least 50% of these funds to small and mid-sized NBFCs and Micro Finance Institutions(MFIs).
  • Special Finance assistance: Reserve Bank of India(RBI) will provide Rs 50,000 crore financial assistance to institutions such as SIDBI, NABARD, NHB.
  • Ways and means Advances(WMA): These are temporary loan facilities provided by the Reserve Bank of India(RBI) to the central and state governments to meet mismatches in the receipts and payments.The limit on WMA has been increased to 60%.