In a massive decision, the Reserve Bank of India has announced that banks are permitted to allow a 3-month moratorium on payment of instalments of all term loans outstanding on March 1, 2020. This decision applies to all regional, rural banks, co-operative banks, NBFCs including Housing Finance Companies.
The moratorium will not result in asset classification downgrade and will have no adverse impact on the credit history of beneficiaries.
This is a part of the Central Bank's measures to counter the Coronavirus lockdown, which had started off with the RBI governor announcing massive slash in the key repo rate to 4.4%, to revive economic growth. Measures have also been announced to ensure liquidity.
#BREAKING | RBI MPC votes for sizeable cut in key repo rate, by 75 basis points to 4.4%, reverse-repo to 4%; accommodative stance retained. Watch Governor Shaktikanta Das' #LIVE briefing here - https://t.co/RZHKU3wOei pic.twitter.com/w2nSoZ5cF8— Republic (@republic) March 27, 2020
The latest rate cut is by far the biggest by the central bank among a series of cuts that have been a highlight of Shaktikanta Das' tenure as Governor. However, the latest measure, which has come as an emergency measure and not within the RBI's bi-monthly policy-review framework, is three times the size of the cut generally applied.
Key rates slashed: The Governor announced a reduction in the repo rate and the reverse repo rate. "The repo rate has been reduced by 75 basis points to 4.4 %. The reserve repo rate has been reduced by 90 basis points to 4%," Das said. The decision for "a sizeable reduction" in the policy repo rate, according to the RBI Governor was taken to "revive growth and mitigate the impact of COVID-19 and ensure financial stability." The Repo rate cut - which is the rate of interest at which banks borrow from RBI - will ensure banks have more access to funds, while the Reverse-Repo rate cut will make it less attractive for banks to park their funds with the central bank.
No projections given due to Coronavirus-induced volatility: Inflation & growth projections would be highly subject to volatility - hence, no projection given, said RBI Governor, 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 depositors should not resort to panic withdrawal of their deposits. He urged those with deposits in private banks to not indulge in panic withdrawal. Measures were also announced and listed to shore up liquidity.
This comes after minutes after influential Moody's Investors Service slashed India's 2020 GDP growth projection from its earlier forecast of 5.3% to 2.5% amid the global Coronavirus pandemic. The Indian government had earlier projected GDP growth at 5% in 2019-20 as compared to 6.1% in 2018-19. Q3 had witnessed a 4.7% growth. India has announced a Rs 1.7 lakh crore Coronavirus relief package, split between assuring food security and Direct Benefit Transfer cash-transfer as the country observes a 21-day lockdown to combat COVID-19, of which over 700 infections have been confirmed thus far.