Amidst coronavirus, there is a shortage of cash-flow, to beat that shortage, the Reserve Bank of India (RBI) has eased off some rules. Until 31st March 2021, the RBI has extended the borrowing limit of various banks to help with liquidity. The central bank (RBI) is the one that regulates the supply of money within the economy and is the banker’s bank.
RBI has come through for the banks during the pandemic
The extension made by RBI is to help the banks to maintain a decent LCR (Liquidity Coverage Ratio) ratio. The Liquidity Coverage Ratio in banking sector basically means the proportion of high liquidity assets the bank holds just so that they could meet with short-obligations.
Due to the ongoing pandemic, the entire world is facing monetary problems. There is no cash flow, and the GDP (Gross Domestic Product) rates have reduced in every country.
With the downfall of the economies throughout the world, keeping recession at bay for long was quite tricky for the government. Still, the measures taken are for preventing the situations from deteriorating further. Thus, RBI is extending its assistance to the bans so that they can remain afloat and help the people too.
This extension is carried under the Marginal Standing Facility (MSF) scheme. Under this scheme, the banks can borrow from 2 per cent to 3 per cent of their net demand and time liabilities. However, this scheme was valid only until June 30. Later, it was extended until September 30, keeping the effects of coronavirus in mind.
The RBI on Monday said that this scheme was curated to provide comfort to the banks on their liquidity requirements and also to continue the LCR ratio. It was also decided to continue with the MSF relaxation for a further period of six months, which is up-to March 21, 2021.
This extension is supposed to help maintain a cash-flow in the economy as we know about the ongoing employment crisis and its effect on the monetary measures. Thus the extension under MSF helps the bank to maintain high liquidity coverage.
The banks can borrow up to 1.49 lakh crore under this extended facility. This can also help with the high-quality liquidity coverage ratio. This scheme can prove to be helpful to manage sudden funds amidst the pandemic.
Other than that the minimum CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) ratio was lowered as well, to help the banks maintain a proper cushion with them and at the same time to maintain the flow in the Indian economy. The RBI’s (Reserve Bank of India) MSF scheme is supposed to be helpful as it eliminates the void of the monetary deficiency. It has also helped the states and union territories to help battle the unforeseen expenses.
The current pandemic has swirled up the entire economy, and it has brought some devastating changes. The impact on the economy is irreversible, but the return to normalcy is expected soon. Such schemes could help the economy stabilise and create a sense of peace in this situation of panic.