RBI extends moratorium on loans for another 3 months till August

Daniel Fowler
May 22, 2020

While addressing a press conference, Governor Das said that an off-cycle meeting of the monetary policy committee was conducted for the past three days.

Following the reduction, the repo rate has come down to 4 percent and the reverse repo rate has been cut to 3.35 percent.

"In order to provide greater flexibility of SIDBI, another 90 days extension for the 90-day term loan facilities will be offered", said governor Das.

Das on Friday also extended the moratorium on payment of loans by another three months till August to provide much-needed relief to borrowers whose income has been hit due to the coronavirus crisis.

These include deferment of interest for 3 months on working capital facilities; easing of working capital financing requirements by reducing margins or reassessment of working capital cycle; exemption from being classified as "defaulter" in supervisory reporting and reporting to credit information companies; extension of resolution timelines for stressed assets; and asset classification standstill by excluding the moratorium period of 3 months, etc.by lending institutions.

With the lockdown being extended till May 31, the Reserve Bank of India has extended the moratorium of installments of term loans by another three months till August 31, 2020.

Food inflation is now under pressure, RBI Governor Shaktikanta Das said that food inflation which had eased from January 2020 peak in February and March has now surged to 8.6 percent in April. He also said there is a need to review import duties to moderate prices.

The headline inflation is expected to fall below the Q3 and Q4 target of 2020-21 of 4%.

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"The combined impact of demand compression and supply disruption will depress economic activity in the first half of the year".

There will be a gradual revival of activity and demand by the second half of FY-2021, said RBI governor.

He said the GDP growth would remain in negative territory, with some pick up in the second half.

He said high-frequency indicators point to collapse in demand, and there is a plunge in demand for electricity and petroleum productions. The governor said that considering the present situation due to the outbreak of COVID-19, this change has been made. These relaxations to states will release an additional amount of about Rs 13,300 crore. Among other regulatory measures, RBI has hiked the group exposure limit for banks to 30 percent from 25 percent. The RBI had set the 25 per cent limit in June 2019 and had capped lenders' exposure to a single party at 20 per cent.

The central bank will remain vigilant and in battle readiness to address dynamics of unknown future arising from COVID-19 outbreak, he added.

Consequently, the reverse repo rate was reduced to 3.35 per cent from 3.75 per cent.

This is the second straight cut in interest rates in two months.

This could come as a major relief to people who have to pay EMIs home loans, auto loans etc, and are facing pay cuts or job losses in the wake of the COVID-19 lockdown. Beyond doubt, repo rate cuts do uplift the sentiments of home buyers even further. Moody's cuts India's GDP growth forecast to 2.5%. This makes it a six month moratorium.

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