The Reserve Bank of India is channeling more funds to shadow banks and micro-lenders, who are crucial in getting money into the hands of individuals and businesses operating outside of the banking sector. Image Credit: Bloomberg

Mumbai: India's central bank pledged to boost liquidity and expand bank credit, as it ramps up support for an economy that's come to a virtual standstill following a nationwide lockdown to contain the coronavirus pandemic.

The Reserve Bank of India will inject 500 billion rupees ($6.5 billion) in a new round of Targeted Long-Term Repo Operations, Governor Shaktikanta Das said. Funds availed by banks through this facility should be used to benefit shadow lenders and micro-financial institutions.

The central bank also cut the reverse repurchase rate, a tool to control money supply, by 25 basis points to 3.75 per cent, and extended the enhanced ways and means advance facility available to the administration to until September 30.

The measures come on top of $50 billion of liquidity injection through cash reserve ratio cuts and other targeted liquidity injection operations in March. Das said at the time that the RBI will continue to remain vigilant and would not hesitate to use any instrument - conventional and unconventional - to mitigate the economic fallout of the virus and preserve financial stability.

The economy is heading for a rare quarterly contraction in the three months to June, and may even shrink for the fullyear after the lockdown was extended.