look news india
The Reserve Bank of India (RBI) has taken a big step to strengthen the country’s banking system and overcome the cash crisis. On Tuesday, the Central Bank suddenly released a huge amount of Rs 1,41,171 crore into the banking system. RBI had to take this decision because at present Indian banks are facing temporary shortage of money (liquidity crunch). When banks have enough money, it directly benefits the pockets of the general public and the economy of the country.
Why did the coffers of banks start becoming empty?
In the last few days, there was a huge shortage of cash in the country’s banking system. If we look at the official figures, the banking system which was in surplus of Rs 30,685.11 crore on June 21, came down to a deficit of Rs 19,971.89 crore on the very next day i.e. June 22. Experts believe that in the month of June, a lot of money suddenly went out of banks due to payment of Goods and Services Tax (GST) by corporates and traders. To meet this shortfall, RBI has handed over this huge amount to banks at a cut-off average rate of 5.26 percent.
What is VRR system which caused rain of money?
The Reserve Bank has provided this financial assistance to banks through ‘Variable Rate Repo’ i.e. VRR auction. VRR is a tool or medium of RBI which it uses to maintain the balance of money in the market. Whenever there is a temporary shortage of cash in banks, RBI injects money into the system through this auction. Due to this sudden shortage, the pressure on overnight money market rates also increased significantly. The weighted average call money rate increased to 5.43 per cent, which is 0.18 per cent higher than the RBI’s normal repo rate. To reduce this pressure, the central bank had to take immediate action.
How will the common man and loan takers get the benefit?
When banks have sufficient liquidity i.e. cash, it becomes very easy for them to distribute loans to customers. After this step, banks will be able to meet the needs of personal loans, home loans and car loans from big corporate houses to the common man without any hindrance. When loans are easily available from banks in the market, the circulation of money increases in the market. This not only accelerates the economic growth of the country but also creates new opportunities for the common man.
To avoid this cash crunch and keep interest rates under control, RBI has injected about Rs 2.43 lakh crore into the market in different installments in the last few days. According to RBI data, Rs 36,300 crore was infused into the banking system through overnight VRR on Monday, Rs 16,750 crore through three-day VRR on Friday, Rs 72,300 crore through two auctions last Wednesday, Rs 89,440 crore on June 16 and Rs 28,220 crore on June 15.