RBI Under Sanjay Malhotra: Rate Cut and Liquidity Easing
Why in the news
Since Sanjay Malhotra took over as RBI Governor in December, the central bank has moved towards a softer, growth-supportive stance while the economy slows.
Key facts
- The Monetary Policy Committee trimmed the repo rate by 25 bps in February, the first reduction in five years.
- To relieve tight liquidity the RBI used OMO auctions (the first in years), USD/INR buy-sell swaps and daily Variable Rate Repo (VRR) auctions.
- Rules deferred: Liquidity Coverage Ratio, Expected Credit Loss framework and project finance norms.
- Risk weights on bank loans to NBFCs and MFIs fell from 125% to 100%, freeing around ₹40,000 crore of capital (roughly ₹4 trillion of lending capacity).
- Curbs were lifted on Kotak Mahindra Bank, Arohan, Asirvad Microfinance and DMI Finance.
- The cease and desist order on Paytm Payments Bank stays.
Economic backdrop
| Indicator | Position |
|---|---|
| GDP growth, July-September | 5.4%, a seven-quarter low |
| Liquidity deficit, January | Up to ₹3 trillion, highest since April 2010 |
| Pressure points | Global uncertainty, rupee weakness, RBI forex intervention that drained liquidity |
Analyst views
Macquarie sees a balance of growth support and flexibility, Nomura expects more easing, and Emkay calls the steps credit positive for banks.
Exam angle
- Governor since December: Sanjay Malhotra.
- Repo cut size: 25 bps, first in five years.
- Reduced risk weight for NBFC/MFI loans: 125% to 100%.
- Related terms: OMO, VRR, LCR, ECL, cease and desist order.