The Reserve Bank of India on Friday extended the moratorium on term loans and working capitals by another three months. “In view of the extension of the [coronavirus] lockdown and continuing disruption on account of Covid-19, these measures are being further extended by another three months from June 1 to August 31,” RBI Governor Shaktikanta Das said at a press briefing.
This was the RBI chief’s first address to the media after the Centre detailed the fiscal and monetary package of Rs 20 lakh crore to support the economy during the pandemic and the lockdown. The announcements came as the country entered the fifth day of the fourth phase of the nationwide lockdown to curb the spread of the virus.
The moratorium allowed by RBI will help borrowers in easing the burden on their savings and avoid turning defaulters. Das had announced the first three-month moratorium for all commercial banks and non-banking financial corporations on March 27.
“Measures announced today can be divided into four categories: to improve functioning of markets, to support exports and imports, to ease financial stress by giving relief on debt servicing and better access to working capital and to ease financial constraints faced by state governments,” said Das. He added that the central bank was vigilant and ready to do whatever it takes to tackle the unknown future.
Interest rates
The RBI governor also announced that both the repo rate and the reverse repo rate would be reduced by 40 basis points during the coronavirus crisis. The step is aimed at encouraging banks to lend more and is likely to make loans cheaper.
With this, the repo rate will come down from 4.4% to 4%. The repo rate is the interest rate at which the top bank lends to commercial banks. The reverse repo rate – the rate at which the central bank borrows funds from commercial banks – has also been cut to 3.35%. Five of the six members of the Monetary Policy Committee voted in favour of the move, the RBI governor said.
This is the third time the central bank’s chief has addressed the media in the last two months. He made the first such address on March 27 and the second on April 17.
On March 27, the central bank had slashed the repo rate, or the interest rate at which the top bank lends to commercial banks, by 75 basis points to 4.4%. The reverse repo rate was also cut by 90 basis points to 4%. It had also permitted all commercial banks and non-banking financial corporations to allow a three-month moratorium on payment of instalments of all term loans. On April 17, the reverse repo rate was reduced by 25 basis points from 4% to 3.75%.
GDP
RBI Governor Das on Friday said the Gross Domestic Product growth in 2020-’21 is likely to remain in the negative. “There will be gradual revival of activity and demand by the second half of the financial year,” he said, adding that a lot will depend on how the Covid-19 curve flattens.
Several organisations have cut growth projections for India during the pandemic. In April, Moody’s Investors Service cut India’s growth forecast for the year 2020 from 2.5% to 0.2%. Earlier, American credit rating agency Fitch Ratings’ company India Ratings and Research cut its growth forecast for India to 0.8% in the 2020-’21 financial year. The International Monetary Fund cut its growth projection for India to 1.9% from the earlier estimated 5.8% for the financial year 2020-’21.
Other announcements
Das said the monetary committee expects the headline inflation in the first half of 2020 to remain intact. “However, by Quarter 3 and Quarter 4, it may fall below the target of 4%,” he added.
The RBI governor announced a 90-day extension for the 90-day term loan facilities to Small Industries Development Bank of India. He said this will provide additional liquidity support to the MSME sector.
Das said a facility of Rs 15,000 crore line of credit for 90 days for US dollar swap facility will be provided to EXIM Bank. He added that the maximum permissible period of pre and post-shipment of credits has been increased from one year to 15 months.
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