The Reserve Bank of India has slashed its key policy rate further, and announced a slew of other measures in a bid to stabilise the financial system and boost credit offtake.
The monetary policy committee of the RBI has cut the repo rate, which is the interest rate applicable on banks' money parked with the central bank, further by 40 basis points to 4 percent. This will help banks bring down their lending rates. With this move, the RBI has now slashed the repo rate by 115 basis points since the lockdown began.
The rate cut was approved by the MPC by a vote of 5-to-1. The RBI has also said it is ready to act again if needed, to stimulate the economy. That's because the central bank expects India's GDP to contract in FY21, with some pickup in growth impulses in the second half of the year.
To give borrowers some support in the coming months, the RBI has also extended the moratorium on term loans and working capital loan by another three months, to end of August. For working capital loans, the interest that accumulates over this moratorium period can be converted into a term loan, and can be repaid during the course of the financial year.
Further, the group exposure limit that banks have to adhere to when lending to corporate houses has been hiked from 25 percent to 30 percent till June 30, 2021. This means that a bank can lend up to 30 percent of its eligible capital base to one business house.
Shereen Bhan spoke to Rajnish Kumar, chairman of State Bank of India, to discuss the measures announced by the RBI.