In a massive decision, the Reserve Bank of India has announced that banks may allow a 3-month moratorium on the payment of installments on all outstanding term loans on March 1, 2020. This decision applies to all regional rural banks, co-operating banks, NBFC, including housing finance companies.
The moratorium will not result in a downgrade of the asset classification and will not have an adverse impact on the credit history of the beneficiaries.
Measures to ensure liquidity were also announced
This is part of the Central Bank’s measures to counter the Coronavirus lockdown, which had started with the RBI governor announcing a massive reduction in the key buyback rate to 4.4%, to revive economic growth. Measures to ensure liquidity have also been announced.
The latest rate cut is by far the largest made by the central bank among a series of cuts that have been a highlight of Shaktikanta Das’s tenure as governor. However, the latest measure, which was presented as an emergency measure and not within the RBI’s bimonthly policy review framework, is three times the size of the generally applied cut.
Here is a summary of their ads:
Key rates were drastically reduced: The governor announced a reduction in the buyback rate and the reverse buyback rate. “The buyback rate has been reduced by 75 basis points to 4.4%. The reserve buyback rate has been reduced by 90 basis points to 4%,” Das said. The decision to “a considerable reduction” in the policy buyback rate, according to the RBI governor, was made to “revive growth and mitigate the impact of COVID-19 and ensure financial stability.” Cutting the Repo rate, which is the interest rate at which banks borrow from the RBI, will ensure that banks have more access to funds, while cutting the Repo rate will make it less attractive to Banks park their funds at the central bank.
No projections have been given due to coronavirus-induced volatility: Inflation and growth projections would be highly subject to volatility, therefore no projection is given, the RBI governor said, admitting that the 5.0% GDP growth forecast was under threat.
Indian banking system “safe and sound”: The governor also said that the Indian banking system is “safe and sound” and that depositors should not resort to withdrawing their deposits out of panic. He urged those with deposits in private banks not to indulge in panic retirement. Measures to shore up liquidity were also announced and listed.
This comes minutes after the influential Moody’s Investors Service slashed India’s 2020 GDP growth projection from its previous forecast of 5.3% to 2.5% amid the global Coronavirus pandemic. The Indian government had previously projected 5% GDP growth in 2019-20 compared to 6.1% in 2018-19. The third quarter had seen growth of 4.7%. India has announced a coronavirus aid package of Rs 1.7 lakh crore, split between ensuring food safety and direct benefit transfer cash transfer, as the country observes a 21-day lockdown to combat COVID-19, of which more than 700 infections have been confirmed so far.