RBI extends moratorium on EMIs for three more months till August 31

Andrew Cummings
May 22, 2020

The RBI had on 27 March slashed the benchmark interest rate by a massive 75 basis points and also announced a three-month moratorium to be given by banks to provide relief to borrowers whose income has been hit due to the lockdown.

Shares of financials including banks, housing finance companies, non-banking finance companies (NBFCs) and microfinance institutions (MFIs) were under pressure, falling up to 8 per cent after the Reserve Bank of India's (RBI's) Monetary Policy Committee (MPC) at its meeting held today chose to extend moratorium period by another three months till August 31, 2020.

The committee voted 5:1 in favour of the cut, Das said, adding the decision was taken at an off-cycle meeting of the MPC that was on for the past three days.

The deployment of excessive funds by banks under the reverse repo route may also come up for discussion on Friday, sources said.

The Reserve Bank on India (RBI) on Friday said India's Gross Domestic Product (GDP) growth will be in negative territory in 2020-21 as the outbreak of COVID-19 has disrupted economic activities.

File image of RBI governor Shaktikanta Das. Considering the current situation due to COVID-19 outbreak, this change has been made said Shaktikanta Das. "Simultaneous fiscal, monetary and administration measures will create conditions for a gradual revival of activity in the second half of 2020-2021".

Among other regulatory measures, the Indian central bank hiked the group exposure limit for banks to 30 per cent from 25 per cent.

Coming to the moratorium, the RBI governor said that the loan moratorium will be extended by three months till August 31, making it a six-month moratorium. He added that an improvement in passing on a lower rate to borrowers has been noticed across various business segments. This he said is going to provide additional liquidity support to the MSME sector.

On inflation, Mr. Das said headline inflation may remain firm in the first half of the current financial year, and ease in the later part of the year. Here, he said that price of vegetables, oilseeds, and milk emerged as pressure points. The RBI had set the 25 per cent limit in June 2019 and had capped lenders' exposure to a single party at 20 per cent.

"The combined impact of demand compression and supply disruption will depress economic activity in the first half of the year".

Volume of world trade can shrink by 13-32 percent this year, says RBI governor Shaktikanta Das. In the light of the COVID-19 pandemic and the consequent stress on these state government finances, Shaktikanta Das said that RBI has chose to relax the rules governing withdrawal from the CSF, while at the same time ensuring that depletion of the fund balance is done prudently.

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