The RBI on Friday put on hold equity monthly installment (EMI) payments on all term loans for three months as it joined the government effort to buffer the economy from the consequences of Covid-19 pandemic. Expressing fears that a big global recession may be around the corner, Mr Das said that India will not be immune from it and needs to respond adequately to the situation.
"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 March 31," the central bank said.
The 3-month moratorium would mean that no EMI would be deducted from the account of any loan borrower for the next three months and this would not affect the credit score vis-a-vis Cibil or any credit information company
This pause on interest payment will be applicable on corporate loans, home loans, car loans and personal loans. It will especially come as a huge relief for the self-employed EMI payers as their income has taken a hit in wake of the lockdown.
The Reserve Bank of India (RBI) governor, Shaktikanta Das also cut key policy rates at its monetary policy meet. The RBI Monetary Policy Committee was originally was slated in the first week of April, but was advanced by a week to meet the challenge of coronavirus. The intervention came after central banks across the world announced rate cuts to stave off a looming coronavirus-related recession.
RBI cut the repo rate by 75 basis points to 4.4 per cent, the lowest in at least 15 years and reduced the reverse repo rate by 90 bps to 4 per cent. It also reduced the cash reserve ratio maintained by banks for the first time in over seven years by 100 basis points.
The central bank also announced liquidity measures such as auction of targeted long-term repo operation of 3-year tenor for total amount of Rs 1 lakh crore at floating rate and accommodation under Marginal Standing Facility to be increased from 2 per cent to 3 per cent of Statutory Liquidity Ratio (SLR) with immediate effect till June 30.
The unexpected rate cut is a godsend for the investors. It will reduce equated monthly installments (EMIs) of existing borrowers and also make it cheaper to avail new loans. Of course, as is the case with any rate cuts, the fixed deposit (FD) investors would have to make do with lower interest rates on their deposits.
The RBI announcements came a day after the government unveiled a Rs 1.7 lakh crore package of free foodgrains and cash to the poor to deal with the economic impact of the 21-day nationwide lockdown.