RBI keeps repo rates unchanged

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On August 6 the Reserve Bank of India’s (RBIs) Monetary Policy Committee kept repo rate and reverse repo rate unchanged. Reserve Bank of India’s Governor Shaktikanta Das said that the MPC maintained the policy stance at accommodative.  The current repo rate is 4 percent while the current reverse repo rate is 3.35 percent. The repo rate is the rate by which the RBI lends funds to commercial banks when they needed, the RBI had already cut basis by 115 basis points in 2020. From August 4th to 6th the MPC had convened for the three-day meeting. Chetan Ghate, Pami Dua, Ravindra H Dholokia, Mridul K Sagar

Michael Debabrata Patra and Shaktikanta Das were the six members of MPC who unanimously voted to keep the repo rate unchanged.

Shaktikanta Das had made a total of seven announcements including a 10000 crore in additional liquidity facility for HFCs and NBFCs restructuring of corporate and individual loans and tweaks to MSME restructuring. With the BSC Sensex climbing 489 points or 1.27per cent to 38142.33 by 1 pm. Shaktikanta Das said that the RBI is now planning to allow the lenders to restructure some loans. He said that to ease COVID-19 pandemic impact on the banking sector, a new resolution window should be created for the corporate and the individual borrowers. Under the June 7th Prudential Framework, it has been decided to provide a window to enable the lenders to implement a resolution plan in respect of eligible corporate exposers without the change in ownership as well as the personal loans, while classifying such exposers as the standard assets subject to specified conditions, Reserve Bank of India said.

As per this, the RBI constituted an expert committee that will make recommendations to the RBI based on required financial parameters along with the sector-specific benchmark ranges for such parameters to be factored into the resolution plans. For the NBFCs and HFCs, the governor announced Rs10000 crore in additional liquidity facility. Shaktikanta Das said that Rs10000 crore will be provided as a special liquidity facility at the policy repo rate which includes Rs 5000 crore facility via National Housing Bank in a bid to shield the housing sector from the liquidity disruptions. He also announced that the 5000 crore facility via National  Bank for Agriculture and Rural Development (NABARD) is to lower the stress faced by the smaller non-bank finance companies and the micro-finance institutions.

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