RBI Prepositions for Lockdown: COVID-19 Policy Updates

The Reserve Bank of India (RBI), working towards providing a support system along with all the firm steps of PM Narendra Modi towards developing remedies for pandemic coronavirus, came up with measures to revive the economy with sizeable reductions in big finance derivatives.

During his address to media, Mr. Shaktikanda Das (The Reserve Bank Governor) said the Monetary Policy Committee (MPC) was of the view that other than the lockdown, the Indian economy might see other extraordinary circumstances with the happening of this pandemic if not stopped and there is also an anticipation of recession like situation as in other countries. Going hand in hand with government efforts for control of the COVID-19 pandemic, the RBI Governor announced for the following propositions during his address to the nation:

  1. Measures for liquidity push: To mitigate the impact of COVID-19, there has been a proposal of reduction in
  2. The industry repo rate by 75 basis point i.e. from 5.15% to 4.4%
  3. Reverse repo rate by 90 basis points to 4.0%.
  4. Cash Reserve Ratio by 100 basis points to 3.0.

These measures are expected to build volatility in credits and ensure better credit flow in the market.

  1. Three months moratorium/stay on loan payments:

For the next three months, RBI has permitted

  1. All lending institutions to hold a moratorium on all term loan payments outstanding as on 1st March 2020.
  2. All lending institutions granting cash credits and overdraft facilities are permitted to defer three months of payment of interest on their credits. These payments will continue once the moratorium ends.
  3. All lending institutions shall be required to reassess their working capital cycle for borrowers. Such adjustments would not lead to any NPA.

With the above adjustments, RBI has permitted that no impact would be placed on the credit history of borrowers. The moratorium will apply on all term loans including home loans, personal loans, cash credits, credit card payments, and car loans.

How it will impact borrowers?

In effect of above-proposed RBI policies, impact drawn on borrowers can be noticed with the following questions and answers:

Q1. Is EMI payable for the moratorium period?

Depending on their board policies, financial institutions are allowed to permit the borrowers benefits of the moratorium period by granting them an extension in loan re-payment. While EMIs with the end of the moratorium period has to be paid as such they are payable in normal terms and the borrowers shall have to in any case bear the interest of this extended period of three months even if they do not pay the EMI.

Q2. Will three EMIs be deducted from my account after moratorium?

The manner of EMIs deduction is yet to be prescribed by RBI, but all the banks and their boards shall have a stake in deciding this methodology.

Q3. Will it impact the credit scorer/history of the borrower?

No changes would be made by financial institutions and credit agencies in the credit history of borrowers in the event of nonpayment of EMI’s in the moratorium period.

All the above measures were intended to mitigate the negative effects of the pandemic and preserve the financial stability of the economy.

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