RBI initiates steps to revive virus-ravaged economy

While Corona warriors across the country are doing their bit to help people tide over the current turmoil caused by the COVID-19 pandemic, the severe shocks felt by the Indian economy as result of the continued lockdown,  have caused serious concern among policymakers. As a result, the Reserve Bank of India (RBI), the apex bank of the country, has come out with a series of measures with the aim to revive the economy.

The RBI has reduced the repo rate by 40 basis points so that the loans can become cheaper for the businesses and consumers and has also brought down the reverse repo rate to 3.35% from 3.75%.

Moreover, the RBI has also extended the moratorium on loans by three more months, so that the borrowers could be provided relief at a time when their income has been severely hit by the current crisis. Earlier in the month of March, the RBI had given a three-month moratorium on the payment of all term loans. Now this additional moratorium will further help ease the pressure on borrowers which will help revive market sentiments up to some extent.

Besides bringing a sharp reduction in repo rate, the RBI has also announced measures to inject more liquidity in export and import segments. In a nutshell, the apex bank has announced the following measures to strengthen the deteriorating economy:

• Reduction in repo rate by 40 basis points: The move is aimed to revive growth and contain the impact of COVID-19.
• Extension of refinance facility to SIDBI to another three months: The facility was earlier announced in the month of April and not it has been refuelled by an additional Rs 15,000 crore refinance facility with the extension for another 90 days.
• Relaxation announced in rules for FPI (Foreign Portfolio Investment) under VRR (Voluntary Retention) route: As an investment window, VRR facilitates the Foreign Portfolio Investors with easier rules.
• Measures introduced to help drive Exports and Imports: RBI has increased the maximum permissible period of pre-shipment and post-shipment export credit. Such credit is sanctioned by banks to exporters. The RBI has increased the permissible period from the existing one year to 15 months, for disbursements made up to July 31, 2020.
• Rs 15,000 crore loan facility has been extended to EXIM Bank: Such an initiative will help promote the foreign trade of India through financing and facilitating for a period of 90 days. This provision can be extended up to one year as well. The loan hence provided enables the bank to fulfil its foreign currency requirements.
• Import payments time period has been extended: It has been extended to one year from the earlier six months from the shipment date.

Apart from all these reform-oriented measures, the RBI has announced several steps to ease financial stress which includes a provision to convert the interest on working capital into an interest term loan, besides increasing group exposure limit to facilitate the availability of more funds to corporates. Especially to help the state governments tide over their financial constraints, the RBI has allowed the states to borrow more consolidated funds.