Details Of RBI’s Economic Regulatory Package-2

This morning, the RBI’s Governor Mr. Shaktikanta Das announced its second round of package to optimize the free flow of cash into the economy. It has asked banks to lend more money and avoid paying dividends to the shareholders.

Lets look into the details:

1. Reverse repo rate cut by 25 bps to 3.75 per cent.
2. Non Performing Asset classification extended by 3 months
3. No payment of dividend by banks
4. Liquidity to NBFC’s and housing finance corporations.

Impact of reverse repo rate cut:

Reverse repo means rate at which banks pays park their money with the RBI. Previously it had slashed the rates by 90 bps and today further by 25 bps to 3.75 per cent.

Now if the banks park in their money with the RBI, they will get just about 3.75 per cent.

This will encourage banks to lend the money in form of loans to its borrowers.

No payment of dividends by banks:

Due to the ongoing lockdown and the massive economic slowdown, the cash crunch could cause substantial increase in NPA’s.

This will affect banks balance sheet adversely and so to prevent the cash outflow from banks, the RBI has put a restriction on dividend payments by the banks to its shareholders.

The RBI is putting best efforts to ease out the economy by injecting cash through all possible means.