RBI Prepositions for Lockdown: COVID-19 Policy Updates
RBI Prepositions for Lockdown- During his address to the media, Mr. Shaktikanda Das (The Reserve Bank Governor) said the Monetary Policy Committee (MPC) was of the opinion that other than the lockout, the Indian economy may see other extraordinary circumstances with the emergence of this pandemic if it is not stopped and there is also an expectation of recession as in other countries as well. Going hand in hand with government efforts to contain the COVID-19 pandemic, during his address to the nation the RBI Governor declared the following propositions:
- Liquidity drive measures: There has been a plan to reduce the effects of COVID-19
- The repo rate for the industry is 75 base level, from 5.15 percent to 4.4 percent
- Reverse repo rate by 90 basis points to 4.0%.
- Cash Reserve Ratio points to 3.0 per 100 scale.
Both initiatives are intended to shore up
credit stability and ensure stronger business credit flows.
- Three months moratorium/stay on loan payments:
For next three months, RBI has permitted
- All lending institutions to hold a freeze on all unpaid term loan payments as of March 1st, 2020.
- All lending institutions which grant cash credits and overdraft facilities are allowed to postpone payment of interest on their credits for three months. Such payments will continue upon termination of the moratorium.
- All lending institutions must re-evaluate their working capital process for lenders. These modifications would result in no NPA.
With the aforementioned changes, RBI has allowed no effect on borrowers ‘credit history. For all term loans, including home loans, personal loans, cash credits, credit card payments and auto loans, the moratorium shall apply.
How will it impact borrowers?
The impact drawn on borrowers can be noted with the
following questions and answers in practice from the above-proposed RBI policies:
Q1. Is EMI payable for the moratorium period?
Financial institutions are permitted to enable the borrowers to benefit from the moratorium duration by granting them an extension in loan re-payment, depending on their Board policies. Although EMIs must be charged as such at the conclusion of the moratorium period, they are payable in normal terms, and the lenders must, in any event, bear the interest of this extended three-month duration, even if they do not pay the EMI.
Q2. Will three EMIs be deducted from my account after moratorium?
RBI is yet to prescribe the way EMIs are deducted, but both banks and their boards will be interested in determining this technique.
Q3. Will it impact the credit scorer/history of the borrower?
Any changes will be made in the credit history of lenders by financial institutions
and credit agencies in the event of EMI’s failure to pay in the moratorium period.
Both of the above steps were aimed at reducing
the pandemic’s adverse impact and maintaining the global financial stability.