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28 Mar 2020Posted By: Mudit Handa


RBI cuts Repo Rate & CRR to reduce COVID-19 Impact on Businesses

Today, the whole world is confronting the peril of Novel Coronavirus disease infection, also referred to as COVID-19. The scenario of COVID-19 infection in India has already reached a critical stage, due to which our government is forced to impose a complete lockdown throughout the country till April 14, so as to mitigate the danger of the COVID-19 infection.

In a bid to provide relief to the Indian businessmen, the government has announced a series of relaxed norms. These include:- 

Adding to the above, now the RBI has proposed to reduce the Cash Reserve Ratio and Repo Rate so as to ease the credit policy, and to ensure that more money goes into the hands of the general public.   

 

1. How much has the Cash Reserve Ratio been reduced?

The Governor of Reserve Bank of India (RBI) Sh. Shaktikant Das held a press conference via VC on 27th March 2020. He has announced that the CRR shall be reduced by 100 basis points to 3% w.e.f. 28th March 2020. 


2. What is the Cash Reserve Ratio?

Cash Reserve Ratio or CRR is the percentage of the total deposits that commercial banks are required to keep in reserve with RBI. This is to ensure that the same deposits can be lent to the bank’s customers as & when the need arises.

A reduction in CRR implies more liquidity with banks, and this implies more money into the hands of the general public. The current reduction in CRR would result in around INR 1.37 lakh crore of the liquid money with the banks. This is a very necessary step during this crisis situation caused due to COVID-19.


3. How much has the Repo rate been reduced?

At the press conference, the RBI governor announced that the Repo rate shall be cut by 75 bp to 4.4%.


4. What is Repo Rate?

Repo rate refers to the rate at which RBI lends money to commercial banks while the scarcity of funds. This controls the money supply in the economy. Lower repo rate means a lower interest rate for the banks on the funds they borrowed from RBI. This increases the money supply in the economy.


5. How will low Repo rates help Indian businesses?

As the Repo rate is reduced to 4.4%, commercial banks will have to pay less interest on the funds they borrowed from RBI. Hence, they will charge less interest rate to their customers. Not only the new business loans will get cheaper, but the EMI on current loans will also reduce. This is a big relaxation for the Indian businesses during this crisis caused by Coronavirus.

However, the businessmen need to duly fulfill ITR filing for getting a business loan. Here also, the government has given relief by extending the deadline for ITR filing to 30th June 2020.

These measures will indeed maintain the ease of doing business amid the economic disruption due to the Coronavirus pandemic.

 

If you require any other sort of guidance with respect to income tax return filing or annual compliance, please feel free to contact our business advisors at 8881-069-069.

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