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What is the reverse repo rate and how does the official reduction in it affect the common man?

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The RBI Governor Shaktikanta Das on Friday announced several major decisions to give a boost to the Corona-affected economy. The reverse repo rate has been cut for the second time within a month, by increasing the cash in the system. Let us know which 5 big announcements have been made by RBI and how you will gain or lose from the reduction in reverse repo rate.

To counter the rising effects of the Kovid-19 epidemic, the RBI has cut the reverse repo rate of banks by 0.25 percent. The reverse repo rate has been reduced by 0.25 percent to 3.75 percent with immediate effect. The repo rate has been retained. How will you benefit or lose from the reverse repo rate reduction? To understand this better, firstly know what is the reverse repo rate?

What is the reverse repo rate?

What is the reverse repo rate and how does the official reduction in it affect the common man?After the day’s work, the banks keep the money left with the Reserve Bank of India. The Reserve Bank pays interest on this amount. The rate at which banks pay interest on this amount to the Reserve Bank of India is called reverse repo rate.

What is the benefit of reverse repo rate reduction?

The reduction in reverse repo rate means that banks will get less interest in depositing their excess money with the Reserve Bank. Banks will be less willing to hold their cash with the Reserve Bank immediately. This will increase the availability of cash with them. Banks will be encouraged to lend more to the productive sectors of the economy. Banks will insist on earning more interest by distributing loans instead of depositing their surplus money with the Reserve Bank. Banks can cut interest rates on loans.

There may be a cut in interest rates on FD

Steps announced by RBI to increase liquidity in the system will put pressure on banks to reduce interest rates on deposits. According to experts, banks can once again cut interest rates on deposits and FDs. Banks have already cut interest rates on deposits significantly.

Other major decisions of the Reserve Bank …
Up to 60% advance facility for states

What is the reverse repo rate and how does the official reduction in it affect the common man?Along with this, Das has increased the facility of advance for them by 60 percent in view of the increasing pressure of expenditure on the states. Till now there was a 30 percent limit for this. This will help the states to provide resources in these difficult times. The Reserve Bank has extended 60 percent facility to the States from April 1 to September 30, 2020, raising the limit of advance for their expenses to 31 March 2020.

Help to NBFC

The RBI governor said that surplus liquidity in the banking system was increased by various measures taken to increase government expenditure and to increase cash by RBI. The central bank will also provide an additional Rs 50,000 crore to the financial system through targeted long-term repo operations (TLTRO). This work will be done in installments. “Amount got in banks under TLTRO 2.0 ought to be put resources into venture class bonds, business papers and non-convertible debentures of non-banking financial companies (NBFCs), within any event 50 of the absolute they got,” he said. The percentage should be met by small and medium-sized NBFCs and microfinance institutions (MFIs).

NABARD, SIDBI, HFC support

The RBI governor also announced a total recapitalization of Rs 50,000 crore for NABARD, SIDBI and National Housing Bank (NHB) to enable them to meet regional lending needs. The RBI announced, Of this amount, Rs 25,000 crore to NABARD for providing new capital to regional rural banks, cooperative banks and microfinance institutions, Rs 15,000 crore to SIDBI for re-financing loans and housing finance companies. 10,000 crores will be given to NHB to help.

Relief for banks

The Reserve Bank Governor said that the 90-day rule to declare a loan as debt will not apply to the prohibition imposed on the installment of the existing loan of the banks. It is noteworthy that the borrowers have been given an exemption for three months on the installment payment of the loan of the banks. Due to this exemption, banks’ loans will not be declared as NPA. He said that banks are exempted from any further dividend payments in view of the financial stress created by the Kovid-19 epidemic.

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