Why Covid Loan Window in news?

The Reserve Bank of India recently opened an on-tap liquidity window of Rs 50,000 crores.

On-tap means ready to serve.

On-tap liquidity window is funds that are to be provided immediately.

Liquidity is related to cash.

What is COVID Loan Book?

-The COVID Loan book is an account of loans provided by the banks under this new window.

-The banks can open COVID loan book.

-They can park their surplus liquidity to the size of COVID Loan Book with the RBI.

-This is to be done at reverse repo rate.

What is Reverse Repo Rate ?

-Reverse Repo Rate is when the RBI borrows money from banks when there is excess liquidity in the market.

-The banks benefit out of it by receiving interest for their holdings with the central bank.

What is RBI's plan under Covid Loan Window?

Under this step, the banks can provide lending support to vaccine manufacturers, importers of vaccines, pathology labs, hospitals and dispensaries, suppliers of vaccines, logistics firms, etc.

How will COVID Loan Book help in economic recovery?

-RBI pays interest to these banks for the money deposited by them.

-In May 2020, the Indian Bank made 3.1 billion USD only by parking the funds with the RBI.

-Lenders are comfortable keeping their funds in safe places even the earning from such means are meagre.

-This is the main reason for the banks to park their funds with RBI.

-The banks parking funds with RBI has been increasing lately. It recently hit record high of seven lakh crores of rupees per day.

-RBI has to push banks to lend more money.

This will compel the banks to lend more money to the market.

- In turn will boost the economic growth.