Coronavirus impact: RBI decides to hold EMIs for three months

Marco Green
March 28, 2020

While announcing decisions of Monetary Policy Committee (MPC) in a live video conferencing, RBI Governor said that RBI will maintain accommodative stance.

The Reserve Bank of India allowed deferral of interest/principal payments on term loans and working capital loans for a three month period but secured the banks interest by allowing them to accrue interest on these loans.

The RBI has just given approval for the banks to implement a moratorium. Effective from 1 April, the interest rate on loans will be reduced by 0.75 per cent.

The S&P BSE Sensex and NSE Nifty 50 indexes ended on a mixed note despite the Reserve Bank of India's surprise 75 basis points repo rate cut and cash reserve ratio cut of 1 per cent.

The RBI cut interest rates five times previous year and had paused since December, citing high inflation. This rate cut means that the repo rate is now at 4.4% and is at its lowest level since its introduction in 2000 and also 35 basis points lower than the lowest level seen during the aftermath of the 2008 global financial crisis. This reduction in CRR by one percentage point of total deposits will release Rs 1.37 lakh crore to banks.

For borrowers facing disruptions on account of coronavirus Covid-19 pandemic, the RBI on Friday (March 27) gave a big relief by allowing a three-month moratorium on payment of instalment in respect of all term loans outstanding on March 1, 2020. "It will not be treated as NPA", the RBI Governor said. Offshore Rupee NDF Market has been growing rapidly. According to C H S S Mallikarjuna Rao, MD & CEO, Punjab National Bank, another relief is the RBI decision to defer prescriptions for high capital requirements to September 2020.

"Large sell-offs in markets have intensified pressure".

In banking parlance, the repo rate is considered a rate at which a country's central bank (RBI in case of India) lends money to commercial banks.

Das further said that the outlook remains extremely uncertain at the time and going forward much will depend on how India battles COVID-19 pandemic. In addition to making available funds, RBI incentivised banks to buy corporate bonds by exempting them from any writedown due to rise in interest rates in future.

Speaking at a virtual press conference, RBI Governor Shaktikanta Das said that these measures will inject liquidity of Rs 3.74 lakh crore into the system. "It is worthwhile to remember that tough times don't last, only tough people and tough institutions do".

On March 26, Centre announced several measures including direct cash transfers and distribution of free food grains for a period of three months to help the economically weaker sections (EWS) of the society during the crisis phase.

Other reports by Click Lancashire

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