₹1,00,000 crore will be injected into the banking system, will your EMI be affected?:

The Reserve Bank of India (RBI) has taken the lead to overcome the liquidity crunch in the country’s banking system. In view of the sluggishness in the market and shortage of money, the Central Bank has taken a big step. After recently injecting short-term cash of Rs 25,101 crore, now RBI is going to conduct a huge auction of Rs 1 lakh crore on Monday, March 23. This decision can prove to be a lifesaver to reduce the increasing pressure on banks due to seasonal reasons and tax payments.

After all, what is VRR auction and how will banks benefit from it?

The Reserve Bank provides funds to banks as per their needs through Variable Rate Repo (VRR) auction. It is a flexible instrument in which banks bid as per their requirement and get short-term funds at a fixed rate. The recent three-day auction saw lower than expected subscription, mainly due to advance tax payments and cash outflows. At present there is a surplus of about Rs 17,000 crore in the system, to further strengthen which an injection of Rs 1 lakh crore is being given.

Know the timing and complete process of the auction of 23 March

According to the schedule released by RBI, the overnight auction process will run from 9:30 am to 10:00 am on March 23. The money received through this auction will have to be returned to the banks the very next day. This step has been taken specifically to compensate for the money flowing out of banks due to advance tax and other seasonal expenses. Liquidity management has now become a regular process in the banking sector, which maintains market stability.

What will be its impact on the loan and EMI of the common man?

Increase in cash with banks can reduce their ‘funding expenses’, which can indirectly benefit common customers. However, experts believe that this short-term move is unlikely to make loan installments (EMIs) cheaper immediately. At present many loan rates remain below 9 percent. Public sector banks are showing good credit growth, but their profit margins are under pressure. If the availability of cash in the market remains constant and inflation remains under control, then expectations of interest rate cuts in future may be strong.

Country’s economy will get ‘booster dose’

This cautious strategy of RBI will increase investor confidence in the Indian market amid global uncertainties. These cash management measures accelerate economic activities without increasing inflation. By improving credit flow, industries and small traders will be able to get loans easily. Overall, this step has been taken to keep the banking system strong, while the real benefit of cheaper loans will depend on the Long Term Monetary Policy Report (MPC) of the Reserve Bank.