A day after finance minister Nirmala Sitharaman unveiled a ₹1.7 lakh crore rescue package for the poor and underprivileged to mitigate the impact of the coronavirus (Covid-19), the Reserve Bank of India (RBI) unleashed a slew of measures, combining rate cuts with regulatory relaxations, to inject a total of ₹3.7 lakh crore into the financial system.

RBI cut the benchmark repo rate—the rate at which the central bank lends short-term funds to banks—by a hefty 75 basis points (bps) to 4.40% with immediate effect, reduced the reverse repo rate (the rate which the RBI pays to borrow short-term funds from banks) by a staggering 90 bps to 4% to disincentivise banks from hoarding money, and also reduced the cash reserve ratio (CRR) by 100 bps to release ₹1.37 lakh crore into the system. The RBI also decided to continue with the accommodative stance “as long as it is necessary to revive growth and mitigate the impact of coronavirus on the economy, while ensuring that inflation remains within the target”. The minimum daily CRR balance has also been reduced for banks from 90% to 80% as a one-time relief available till June 26 this year. The Bank Rate and the marginal standing facility (MSF) rate also stand reduced consequent to the repo rate cut.

Banks have also been allowed to grant major relaxations to borrowers on term loans and working capital.

The series of actions were announced on Friday morning by RBI governor Shaktikanta Das over a video address, after the monetary policy committee (MPC) of the central bank, which decides on interest rates, brought forward its meeting to March 24-27 in view of the massive disruptions being caused in the wake of the Covid-19 pandemic. India has been under a 21-day lockdown from midnight of March 25 after the government said it was necessary for people to stay at home and maintain social distancing to ensure the virus does not spread. While the MPC voted unanimously for a sizeable quantum of reduction in the repo rate, the exact quantum of 75 bps was decided by a 4-2 margin.

In a detailed address, governor Das said: “Global economic activity has come to a near standstill as Covid-19 related lockdowns and social distancing are imposed across a widening swathe of affected countries. Expectations of a shallow recovery in 2020 from 2019’s decade low in global growth have been dashed. The outlook is now heavily contingent upon the intensity, spread and duration of the pandemic. There is a rising probability that large parts of the global economy will slip into recession.”

“Central banks and governments are in war mode, responding to the situation with several conventional and unconventional measures targeted at easing financial conditions to avoid a demand collapse and to prevent financial markets from freezing up due to illiquidity,” he added.

The governor added that the second advance estimates of the National Statistical Office released in February 2020 which implied real GDP growth of 4.7% for Q4 of 2019-20 within the annual estimate of 5% for the year as a whole was now “at risk from the pandemic’s impact on the economy”. High frequency indicators suggest that private final consumption expenditure has been hit hardest, even as gross fixed capital formation has been in contraction since Q2 of 2019-20, he said. The FY20 growth projection of 4.4% was at risk, and the outlook for FY21 unclear, he added.

The need of the hour, he said, is to do whatever is necessary to shield the domestic economy from the pandemic. “Central banks across the world have responded with monetary and regulatory measures—both conventional and unconventional,” he said, adding: “Tough times don’t last. Tough institutions do.”

Reiterating that all options to combat the impact of the virus on the monetary system were on the table and the RBI was keeping a close watch on developments, Das unveiled a host of additional developmental and regulatory moves to cushion the Covid-19 impact.

* Targeted Long Term Repos Operations (TLTRO): RBI will conduct auctions of targeted term repos of up to three years tenor of appropriate sizes for a total amount of up to ₹1 lakh crore at a floating rate linked to the policy repo rate. Liquidity availed under the scheme by banks has to be deployed in investment-grade corporate bonds, commercial paper, and non-convertible debentures over and above the outstanding level of their investments in these bonds as on March 27, 2020. Banks will have to acquire up to 50% of their incremental holdings of eligible instruments from primary market issuances and the remaining 50% from the secondary market, including from mutual funds and non-banking finance companies. Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25% of total investment permitted to be included in the HTM portfolio. Exposures under this facility will also not be reckoned under the large exposure framework.

* In view of the exceptionally high volatility in domestic financial markets which bring in phases of liquidity stress and to provide comfort to the banking system, RBI has increased the MSF limit of 2% to 3% with immediate effect. This measure will be applicable up to June 30, 2020. “This is intended to provide comfort to the banking system by allowing it to avail an additional ₹1,37,000 crore of liquidity. The three measures relating to TLTRO, CRR, and MSF will inject a total liquidity of ₹3.74 lakh crore to the system.

* Banks have also been allowed a three-month moratorium on all installment payments on term loans outstanding as on March 1, 2020. In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the deferment period.

* In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions have been allowed to recalculate drawing power by reducing margins and/or by reassessing the working capital cycle for the borrowers. Such changes in credit terms permitted to the borrowers to specifically tide over the economic fallout from Covid-19 will not be treated as concessions granted due to financial difficulties of the borrower, and consequently, will not result in asset classification downgrade.

* The deadline for the implementation of the Net Stable Funding Ratio (NSFR) under which banks were to maintain sufficient funds to tide over times of stress under the Basel norms has also been extended by six months to October 1, 2020. Similarly, the last tranche of the Capital Conservation Buffer (CCB) has also been deferred to September 30, 2020.

* Banks in India which operate International Financial Services Centre (IFSC) Banking Units (IBUs) have been allowed to participate in the rupee non-deliverable forward (NDF) market with effect from June 1, 2020.

The financial community has welcomed the series of steps by the RBI. Rahul Bajoria, chief India economist at Barclays, said: “The RBI has surpassed expectations by delivering more than what the market anticipated, and its promise to ‘do whatever it takes’ has come good. The steps to ease working capital pain, reduce liquidity costs and provide moratorium on term loans will alleviate stress across various sectors. We continue to see rates dropping to 3.50% by August 2020.”

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.