Context: With an aim to curtail the impact of the coronavirus pandemic and the subsequent 21-day lockdown, the RBI has announced a slew of economic measures.
Background

• After the Government’s announcement of Pradhan Mantri Gareeb Kalyan Yojana, the Reserve Bank of India’s Monetary Policy Committee (MPC) has come out with its own measures to help deal with economic fall out of COVID-19 pandemic.This was the first time that the MPC met outside its bi-monthly meeting calendar.

Key Findings

• The Reserve Bank of India cut its repo rate by 75 basis points (bps) to 4.4 percent. Besides this, the central bank also cut the cash reserve ratio (CRR) for the banks by 100 bps to 3 percent with effect from March 28 for the next one year. 
• The reverse repo rate has also been reduced by 90 basis points to 4 percent in a bid to maintain financial stability and revive growth. RBI to undertake repo operation of up to Rs 1 lakh crore to infuse liquidity into market. 
• Cash reserve ratio of all banks reduced by 100 bps to 3 percent with effect from March 28 for 1 year; to release Rs 1.37 lakh crore liquidity. 
• RBI permits all lending institutions to allow 3-month moratorium on payment of installments on term loans. Moratorium on term loan, deferring of interest on working capital will not classify as default, not to impact credit history of borrower. 
• Interest on working capital facilities to be deferred by three months and such deferment not to be considered for NPA. This is one of the key takeaways from RBI's announcements as many people have been financially affected due to the lockdown implemented to prevent novel coronavirus from spreading in India. 
• RBI has also been conducting many other monetary operations for better liquidity management as it scrambles to keep the banking sector healthy in a bid to support the economy in the wake of the novel coronavirus pandemic.

About Monetary Policy Committee (MPC)

• The Monetary Policy Committee of India is responsible for fixing the benchmark interest rate in India.
• The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.
• The committee comprises six members – three officials of the Reserve Bank of India and three external members nominated by the Government of India.
• They need to observe a “silent period” seven days before and after the rate decision for “utmost confidentiality”.
• The Governor of Reserve Bank of India is the chairperson ex officio of the committee.
• The Reserve Bank of India Act, 1934 was amended by Finance Act (India), 2016 to constitute MPC which will bring more transparency and accountability in fixing India’s Monetary Policy.
• The monetary policy are published after every meeting with each member explaining his opinions.
• The committee is answerable to the Government of India if the inflation exceeds the range prescribed for three consecutive months.
• Key decisions pertaining to benchmark interest rates used to be taken by the Governor of Reserve Bank of India alone prior to the establishment of the committee.
• The Governor of RBI is appointed and can be disqualified by the Government anytime.

Different Terminologies in Banking Sector

• Loan moratorium period refers to a particular period of a loan tenure during which the borrower does not have repay anything. It can be described as a waiting period before the borrower will have to start paying the equated monthly instalments (EMIs) for his or her loan. It doesn’t mean that he is completely waived off his loans.
• REPO rate (now 4.4%) denotes Re Purchase Option – the rate by which RBI gives loans to other banks. In other words, it is the rate at which banks buy back the securities they keep with the RBI at a later period.
• Bank gives loan to the public at a higher rate, often 1% higher than REPO rate, at a rate known as Bank Rate.
• RBI at times borrows from banks at a rate lower than REPO rate, and that rate is known as Reverse REPO rate (now 4%).
• CRR or Cash Reserve Ratio corresponds to the percentage of cash each bank have to keep as cash reserve with RBI (in their current accounts) corresponding to the deposits they have. For example, say if State Bank of India (SBI) got a total deposit of Rs. 1 crore with them, they need to keep 4 % of that as cash reserve with RBI (around 4 lakh rupees).
• The banks and other financial institutions in India have to keep a fraction of their total net time and demand liabilities in the form of liquid assets such as G-secs, precious metals, approved securities etc. The Ratio of these liquid assets to the total demand and time liabilities is called Statutory Liquidity Ratio(18.25%).