RBI Defers EMI Repayments For Three Months For Business Loans

Andrew Cummings
March 28, 2020

The Reserve Bank of India has announced rate cuts like never before, on Friday.

The biggest rate cut since 2009 was accompanied by measures to boost banking system liquidity that add up to 3.74 trillion rupees (S$72 billion), as well as to support the financial markets and smooth volatility.

The RBI has reduced the repo rate and reverse repo rate by 75 and 90 basis points. "A moratorium is not an interest waiver".

Towards the end of the conference, the RBI announced that they have injected liquidity of Rs 2.8 lac crore via various instruments equal to 1.4 per cent of GDP.

Commenting on the rate cut Chandrajit Banerjee, Director General, CII, said the substantial reduction in the CRR will help banks to reduce their lending rates and aid monetary transmission.

The RBI measures come a day after the government unveiled a Rs 1.7 lakh crore package of free foodgrains and cash doles to the poor. Downside risks to growth arise from the spread of COVID-19 and prolonged lockdowns, " says Shaktikanta Das.

Saurabh Jain, assistant vice president of research for SMC Global Securities, told Reuters that there was a standstill in the economy and the market is not sure how long the coronavirus pandemic will sustain.

All retail floating rate loans sanctioned by banks after October 1, 2019 have to be linked to an external benchmark - it's the repo rate for most banks. "The moratorium will give relief to homebuyers and businesses".

He added that there is no doubt that the RBI is playing every card in its pocket to prevent a crisis-like situation by giving banks the ability to lend more, but as such no direct helping hand has been given to ailing industries as of now.

The state has announced that the Ready Reckoner rates that are usually published before a new financial year begins will be published "once the coronavirus threat subside". "More steps might be needed once the government comes out with the much-needed stimulus package to overcome the economic crisis arising from COVID 19". It asked the lending institutions to enable an across-the-board shift of repayment schedules and all subsequent due dates by three months.

If additional interest burden for three month amoratorium period is also equally divided in all future EMIs, the monthly bill for customer may increase or banks may decide to keep EMIs same but increase the tenure of loan by a few months.

What are the type of loans that are covered? This means home loans, auto loans, personal loans, education loans and consumer durable loans such as EMIs on mobile phones, refrigerators and washing machines. If loans are available, it will boos the business sentiment.

"Whether the customers will have to pay this additional interest in one go or will be allowed to get it adjusted as additional EMI is something that needs to be clarified by banks", said a financial sector analyst asking not to be named.

On rescheduling of payments for term loans and working capital facilities, the RBI further said, "The accumulated accrued interest shall be recovered immediately after the completion of this period".

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