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Coronavirus: RBI devises Rs 3.47 lakh crore liquidity injection to mitigate lockdown impact

HYDERABAD: As part of its Covid-19 package, the Reserve Bank of India on Friday vowed to pump in Rs 3.74 lakh crore additional liquidity to the system. Together with the liquidity boosting measures undertaken by the central bank after its policy review in February, the injected liquidity now stands at 3.2 per cent of the GDP, said RBI Governor Shaktikanta Das.

RBI has already injected liquidity worth Rs 2.8 lakh crore, or 1.4 per cent of the GDP, through various instruments since February. “Along with today’s measures, the liquidity now equals to 3.2 per cent of GDP. RBI will take continuous measures to ensure liquidity in the system,” Das said.

On Friday, he further announced a fresh Targeted Long-Term Repo Operation (TLTRO) of up to Rs 1 lakh crore. These will be of three-year tenor, bearing a floating interest rate.

“The issue of capital-starved borrowers despite ample systemic liquidity will partly be addressed by the Rs 1 lakh crore of TLTROs, as this money has to be compulsorily lent to investment-grade Non-Convertible Debenturess and Commercial Papers, which have also been provided additional HTM benefit. The mandate of using this window for both primary and secondary market securities at once provides the much-needed money to corporate borrowers as well as investors such as non-banking financial companies and mutual funds in need of liquidity,” said Piyush Baranwal, senior fund manager (fixed income), Yes Asset Management.

Besides, the Cash Reserve Ratio (CRR) — the percentage of deposits banks park with RBI — of all banks is reduced by 100 bps to 3 per cent from 4, with effect from the fortnight beginning March 28 for one year. The move will release Rs 1.37 lakh crore liquidity into the market. The reduction comes after a gap of seven years and is expected to impove banks’ profitability.

Moreover, the RBI decided to reduce the requirement of minimum daily CRR balance maintenance from 90 per cent to 80 per cent, effective from the fortnight beginning March 28. This is a one-time dispensation available up to June 26.

Lastly, the RBI also increased accommodation under the Marginal Standing Facility (MSF) from 2 per cent of the statutory liquidity ratio to 3 per cent with immediate effect. This will be applicable up to June 30 and will comfort banks by allowing them to avail an additional Rs 1.37 lakh crore liquidity under the LAF window. These three measures including TLTRO, CRR and MSF will inject a total liquidity of Rs 3.74 lakh crore into the system.