Reserve Bank of India (RBI) has announced a slew of measures on 27 March 2020 to tackle Coronavirus (COVID 19) outbreak in India. RBI has put EMI on all outstanding loans on hold as well as reduced repo, reverse repo rate. People can now check the RBI Live News Update here and the decisions taken by RBI to benefit self employed, salaried and common people. Previously, the central govt. had announced 1.70 lakh crore PM Garib Kalyan Yojana package yesterday to provide huge relied to poor people.
Now the RBI has joined the fight with host of measures aimed to minimize the damage from COVID 19 pandemic. The relief measures by RBI comes just hours after Moody’s Investors Service cut India’s growth forecasts for FY 2020 to 2.5% from previous 5.3%.
The MPC has given this decision by 4-2 majority to reduce repo rate by 75 basis points to 4.4%. Moreover, the reverse repo rate is also cut by 90 bps to 4% which is now creating an asymmetrical corridor.
RBI’s Initiatives on Coronavirus Outbreak
Here are the complete details of the measures announced by Reserve Bank of India on Coronavirus (COVID 19) outbreak:-
EMI on All Outstanding Loans Put on Hold
RBI has announced a moratorium of 3 months of EMIs on all outstanding loans due with banks. The official statement is that “All commercial, regional, rural, NBFCs and small finance banks are being permitted to allow 3-month moratorium on payment of installments in respect of all term loan EMIs outstanding on 31 March 2020”. For the upcoming 3 months, no EMI shall be deducted from anyone’s bank account who has outstanding loans.
All the EMIs will resume after the moratorium period gets over. It is going to be a huge relief for all EMI payers especially for self employed persons. All such people whose income had become uncertain in the wake of lockdown. The 3 month moratorium will apply to corporate loans, home loans as well as car loans. All the personal loans would also qualify for this EMI relief by RBI. However, it is important to note that credit card dues would not be a part of this moratorium as it is not a term loan.
Repo / Reverse Repo Rate Reduced by RBi amidst Coronavirus Outbreak
RBI calls fight on Coronavirus as a war and it is a fight never seen before. RBI governor has outlined the risks of COVID 19 fight to Indian economy. Now the RBI is laying emphasis on the need to keep credit flowing to stressed areas of economy. Repo rate has been reduced by 75 basis points to 4.4% while reverse repo rate is also cut by 90 bps to 4%. RBI also maintains accommodative stance as long as necessary to ensure that inflation remains within target.
RBI governor said that big recession coming all over the world and India will not be immune. This depends on how India will respond to situation. Global slowdown can make things difficult for India also inspite of some help from falling crude prices. The food price may soften further on record crop, aggregate demand may weaken and can further ease core inflation.
Injection into Liquidity Flow By RBI
RBI Governor Shaktikanta Das has announced a 3 way liquidity injection into Indian economy which are as follows:-
- Auction of targeted long term repo operations of 3-year tenor for total amount Rs. 1,00,000 crore at floating rate.
- Reduction of CRR for all banks by 100 basis points. RBI is going to release Rs. 1,37,000 crore across banking system.
- Accommodation under Marginal Standing Facility to be increased from 2% from SLR to 3% with immediate effect till 30 June 2020. It will release Rs 1.37 lakh crore into the system.
These 3 combined measures will make a total availability of Rs. 3,74,000 crore to Indian financial system. The country’s banking system is safe and sound and it would be false to link share prices to bank’s fate. Any Indian must not get worried about their bank deposits.
RBI COVID 19 Measures Background
In last 1 year, RBI has cut down policy rates for 5 times but RBI had been on a pause since December 2019 keeping in view high inflation rate. Earlier this week, RBI’s monetary policy committee (MPC) had held an unscheduled meeting to zero in on possible emergency measures. India is Asia’s 3rd largest economy which has been locked down for 3 weeks since 25 March 2020. This COVID 19 lockdown has put millions of daily wage earners and lakhs of businesses in hardship.
Previously, the financial services secretary had written to RBI seeking a moratorium of a few months on EMIs, interest and loan repayments. A relaxation in the NPA classification norms was also sought from RBI to help those who face loss of income. Under RBI rules, any default in payments has to be recognized within 30 days and these accounts are to be classified as “special mention accounts”. Furthermore, experts are saying that re-classification is necessary to ensure businesses survive the Coronavirus hit even at the expense of banks for the time being.