On June 26, 2020, In exercise of power conferred under the Section 24 of the Banking Regulation Act, 1949, India’s central bank, the Reserve Bank of India (RBI) has decided to extend the enhanced borrowing facility provided to banks till September 30, 2020 to meet the liquidity shortage in the midst of the economic crisis caused by the coronavirus (COVID-19) epidemic.
Discount was earlier up to June 30:
- Under MSF (marginal standing facility), banks can borrow funds with a maturity of one day by reducing investment in Statutory Liquidity Ratio (SLR) securities from the central bank.The MSF rate currently stands at 4.25 %.
- The Reserve Bank had earlier given this exemption to notified banks till June 30, 2020. Now it has been extended till 30 September 2020.
The borrowing limit of banks increased:
The RBI had raised the limit of borrowing for notified banks under the MSF as a temporary measure with effect from 27 March 2020. So, following the extension in relaxation, banks can avail loans equal to 3% (2% earlier) of their net demand and time liability (NDTL) from the Reserve Bank.
RBI extends CRR relaxations For Three More Months till September 25, 2020
In exercise of power conferred under the Section 42(1) of the Reserve Bank of India Act, 1934, the RBI has extended the minimum daily cash reserve ratio (CRR) maintenance of 80% by three months until 25 September 2020.
On 27 March 2020, the central bank, in its Developmental and Regulatory Policies Statement, had reduced it from 90 % to 80 % for upto 26 June 2020.
Banks have to invest certain percentage of their deposits in specified financial securities like Central Government or State Government securities. This percentage is known as SLR. This money is predominantly invested in government securities which mean the banks can earn some amount as ‘interest’ on these investments as against CRR where they do not earn anything.
Currently, SLR is 18 % of a bank’s deposits.
It is the ratio of Deposits which banks have to keep with RBI. Under CRR a certain percentage of the total bank deposits have to be kept in the current account with RBI. Currently, the CRR is at 3 % of a bank’s deposits.
About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).