RBI cuts rates, permits banks to allow three-month moratorium on loan EMIs

RBI Governor Shaktikanta Das has announced that all lending institutions will be permitted to allow a three-month moratorium on the repayment of installments for term loans outstanding as on March 1, 2020. They will also be permitted to allow deferment of three months on interest payment on working capital facilities. Das added the measures won’t result in asset classification downgrade.

The repo rate was reduced to by 75 bps 4.4% while the reverse repo rate was cut by 90 bps point to 4%. The higher reduction in the reverse repo rate was aimed at prompting banks to lend more rather than keeping their excess liquidity with the RBI.

“We are living through an extraordinary and unprecedented situation. Everything hinges on the depth of the COVID-19 outbreak, its spread and its duration,” RBI governor Shaktikanta Das said.

“Clearly, a war effort has to be mounted to combat the virus, involving both conventional and unconventional measures,” Mr. Das said.

Apart from cutting the repo rate, RBI has also reduced the cash reserve ratio of banks which released ₹1.37 lakh crore liquidity. This, along with other measures, will see an infusion of ₹3.74 lakh crore into the banking system.

RBI has also allowed banks to defer payment of EMIs on home, car, personal loans as well as credit card dues for three months till May 31. Since non-payment will not lead to non-performing asset classification by banks, there will be no impact on credit score of the borrowers.