{"id":15098,"date":"2021-05-06T00:00:00","date_gmt":"2021-05-06T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/06-05-2021\/rbi-steps-in-to-ease-covid-19-burden\/"},"modified":"2024-07-08T14:50:59","modified_gmt":"2024-07-08T09:20:59","slug":"rbi-steps-in-to-ease-covid-19-burden","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/06-05-2021\/rbi-steps-in-to-ease-covid-19-burden","title":{"rendered":"RBI Steps In To Ease COVID-\u00ad19 Burden"},"content":{"rendered":"<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong><u>In News<\/u><\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><u>\u00a0<\/u><\/span><\/span><\/span><\/p>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">Recently, the <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Reserve Bank of India (RBI)<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> announced a series of measures to support the nation\u2019s fight against the second wave of COVID-19 infections.<\/span><\/span><\/span><\/p>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong><u>Major Highlights Of Recent Steps<\/u><\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>\u00a0<\/strong><\/span><\/span><\/span><\/p>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Term Liquidity<\/strong><\/span><\/span><\/span> <span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Facility<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">RBI announced a <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Term Liquidity<\/strong><\/span><\/span><\/span> <span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Facility<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> of ?50,000 crores with the tenor of up to <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>three years<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">, at the<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> repo rate<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> to ease access to <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>credit for providers of emergency<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> health services.<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type: circle;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">Under this, banks will <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>provide fresh<\/strong><\/span><\/span><\/span> <span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>lending support<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> to a wide range of entities, including <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>vaccine manufacturers<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">, <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>importers\/suppliers<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> of vaccines etc.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Special Long Term Repo Operations for Small Finance Bank<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The RBI decided to conduct special<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> three-year long-term repo operations (SLTRO<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">) of ?10,000 crores at the <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>repo rate for <\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #1155cc;\"><strong><u>Small Finance Banks<\/u><\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #1155cc;\"><u>.<\/u><\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The SFBs would be able to deploy these funds for fresh lending of up to ?10 lakh per borrower.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Lending by Small Finance Banks to MFIs\u00a0<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">SFBs will be permitted to reckon fresh lending to <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>smaller Microfinance institutions (MFIs) (with asset size of up to Rs 500 crore)<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> for on-lending to individual <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>borrowers as priority sector lending<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">This means there will be concessions on interest rates and repayments. This facility will be available up to March 31, 2022.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Credit to MSME entrepreneurs<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">In February 2021, banks were allowed to <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>deduct credit disbursed<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> to new MSME borrowers from their <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>net demand and time liabilities (NDTL) f<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">or calculation of the <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>cash reserve ratio (CRR).<\/strong><\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">In order to incentivise the inclusion of <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>unbanked MSMEs<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> into the banking system, this exemption currently available for exposures up to <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Rs 25 lakh and for credit disbursed<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> up to the fortnight ending October 1, 2021, is being extended till <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>December 31, 2021<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Overdraft (OD) facility for states<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The RBI also announced certain relaxations and <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Overdraft (OD) facilities<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> of State Governments so that they can better manage their<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> financial situation<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> in terms of their <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>cash-flows and market borrowing<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">s.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">Accordingly, the maximum number of days of OD in a quarter is being i<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>ncreased from 36 <\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">to<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> 50 days<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> and the number of consecutive days of OD from 14 to 21 days.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">This facility will be available up to September 11 30, 2021. The<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #1155cc;\"><strong><u> Ways and Means Advance (WMA<\/u><\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>)<\/strong><\/span><\/span><\/span> <span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>limits<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> of states have already been enhanced on April 23, 2021.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>KYC rationalisation<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The RBI has decided to rationalise certain components of the extant KYC norms<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type: circle;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">These include\u00a0<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type: square;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Extending the scope of video KYC<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> known as<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> V-CIP<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> (video-based customer identification process) for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of Legal Entities and for periodic updation of KYC.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: square;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">Enabling the use of <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>KYC Identifier of Centralised KYC Registry<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> (CKYCR) for V-CIP and submission of electronic documents (including identity documents issued through DigiLocker) as identity proof\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong><u>Eligibility Criteria<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The individuals and small businesses and MSMEs having aggregate <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>exposure of up to Rs 25 crore <\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">and who has not availed restructuring under any of the earlier<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> restructuring frameworks<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> (including under the Resolution Framework 1.0 dated August 6, 2020), and who were classified as \u2018Standard\u2019 as on March 31, 2021, will be eligible to be <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>considered under Resolution Framework 2.0.<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">In the case of<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> individual borrowers and small businesses<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> who have availed restructuring of their loans under Resolution Framework 1.0, where the resolution plan permitted moratorium of less than two years, lending institutions will be permitted to use this window to <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>modify such plans<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> to the extent of increasing the period of the moratorium and\/or extending the residual tenor u<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>p to a total of 2 years<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">.<\/span><\/span><\/span><\/li>\n<\/ul>\n<div>\n<table style=\"border-collapse: collapse; border: none; table-layout: fixed; width: 624px;\" cellspacing=\"0\">\n<tbody>\n<tr>\n<td style=\"background-color: #fff2cc; vertical-align: top; border: 1px solid #000000;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong><u>Long Term Repo Operation (LTRO)<\/u><\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><u>\u00a0<\/u><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">It is basically a mechanism to inject<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> liquidity into the banking system<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> as well as to ensure the <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>smooth transmission of monetary policy <\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">actions and flow of credit into the economy.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">Under it, the central bank provides <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>one-year to three-year money <\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">to banks at the <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>prevailing repo rate<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">, accepting government securities with matching or higher tenure as the collateral.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong><u>Cash Reserve Ratio (CRR)<\/u><\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>\u00a0<\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The Reserve Bank of India mandates that banks store a<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> proportion of their deposits<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> in the form of <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>cash <\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">so that the same can be given to the bank\u2019s customers if the need arises.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The percentage of cash required to be kept in reserves, vis-a-vis a bank\u2019s total deposits, is called the <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Cash Reserve Ratio<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">. The cash reserve is either stored in the bank\u2019s vault or is sent to the RBI. <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Banks do not get any interest<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> in the money that is with the RBI under the CRR requirements.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The Cash Reserve Ratio in India is decided by <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>RBI\u2019s Monetary Policy Committee<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> in the periodic Monetary and Credit Policy.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">CRR is one of the major weapons in the RBI\u2019s arsenal that allows it to maintain a desired level of <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>inflation, control the money supply, and also liquidity <\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">in the economy.<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type: circle;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The<\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong> lower the CRR, the higher liquidity with the banks<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">, which in turn goes into investment and lending and vice-versa.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: circle;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>Higher CRR can also negatively impact the economy<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> as lesser availability of loanable funds, in turn, slows down investment. It thereby reduces the supply of money in the economy.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong><u>Repo Rate<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">The repo rate is the rate at which the <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>RBI lends money<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"> to the banking system for <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>short durations.<\/strong><\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">Commercial banks sell government securities and bonds to the Reserve Bank of India with an agreement to repurchase them on a future date at a predetermined price including interest charges.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong><u>Reverse Repo Rates<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">A reverse repo rate is a rate at which the <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>commercial banks give a loan to the\u00a0 central authority.<\/strong><\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">\u00a0It is a monetary instrument used to maintain supply in the market.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type: disc;\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">\u00a0A reverse repo is the <\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\"><strong>opposite of the repo rate<\/strong><\/span><\/span><\/span><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #000000;\">.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><a style=\"text-decoration: none;\" href=\"https:\/\/www.google.com\/amp\/s\/www.thehindu.com\/business\/Economy\/rbi-steps-in-to-ease-covid-19-burden-small-businesses-msmes-to-get-relief\/article34492630.ece\/amp\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size: 11pt;\"><span style=\"font-family: Arial;\"><span style=\"color: #1155cc;\"><u>Source :TH<\/u><\/span><\/span><\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News\u00a0 Recently, the Reserve Bank of India (RBI) announced a series of measures to support the nation\u2019s fight against the second wave of COVID-19 infections. Major Highlights Of Recent Steps\u00a0 Term Liquidity Facility RBI announced a Term Liquidity Facility of ?50,000 crores with the tenor of up to three years, at the repo rate [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":15099,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-15098","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/692204current-affairs.jpg","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/15098","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=15098"}],"version-history":[{"count":2,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/15098\/revisions"}],"predecessor-version":[{"id":26367,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/15098\/revisions\/26367"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/15099"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=15098"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=15098"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=15098"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}