RBI joins corona fight with big-bang rate cut

In a major relief to borrowers across the spectrum, the Reserve Bank of India on Friday permitted banks to allow a moratorium of three months on the payment of instalments in respect of all term loans outstanding as on March 1, 2020.

Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by three months, the RBI said.

The central bank's Monetary Policy Committee (MPC) also favoured a 75-bps repo rate cut. This apart, the reverse repo rate stands reduced by 90 bps to 4 per cent.

However, the decision on the rescheduling of home, auto, and other loans will finally be taken and conveyed to customers by individual banks

New Delhi/Mumbai: RBI governor Shaktikanta Das on Friday announced a series of steps to boost liquidity in a stimulus worth 3.2% of GDP to counter the economic impact of the coronavirus outbreak.

The Reserve Bank of India has cut its key interest rate by a sizable 75 basis points to 4.4% from 5.15% to ease financing troubles caused by the pandemic and help revive the economy.

In what could be a huge relief for banks and borrowers, the RBI has also allowed banks to provide a 3-month moratorium on loans and EMI repayments.

Das said that the moratorium on term loans, deferring of interest on working capital will not classify as default, not to impact credit history of the borrower.

"All commercial banks including regional rural banks, cooperative banks, NBFCs (including housing finance companies) and lending institutions are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1," he said.

The RBI Governor said that the moratorium/deferment is being provided to enable the borrowers to tide over the economic fallout from the deadly coronavirus and hence it cannot be treated as change in terms and conditions of the loan agreements due to financial difficulty.

However, the final decision to provide such a relief is in the hands of the banks.

The announcement by the RBI Governor came a day after Union Finance Ministry announced a 1.7 trillion ($22 billion) economic stimulus package.

The package included delivering grains and lentil rations for three months to 800 million people.

The RBI held a monetary policy committee meeting nearly a week early to cope with the disruptions to the economy due to a three-week lockdown announced by Prime Minister Narendra Modi on Tuesday.

The RBI Governor said the outlook remains extremely uncertain at the time and going forward much will depend on how India battles Covid-19 pandemic.

"The outlook is now heavily contingent upon the intensity, spread and duration of the pandemic. There is a rising probability that large parts of the world will slip into recession," Das added.

"MPC noted that global economic activity has come to a near stand-still as Covid-19 related lockdowns and social distancing in affected countries.

Expectations of a shallow recovery in 2020 from 2019's decade low in global growth have been dashed," Shaktikanta Das said.

"It has been decided to reduce the Cash Reserve Ratio (CRR) of all banks by 100 basis points to 3% of Net Demand and Time Liabilities with effect from the fortnight beginning March 28 for a period of 1 year," the RBI Governor announced.

"Tough times never last, only tough people and institutions do. The RBI is at work and at mission mode. Will do everything required to mitigate the effects of Covid-19 pandemic," he said.