RBI permits 3 month moratorium on EMI payments on all outstanding loans

RBI MPC statement on coronavirus pandemic explained

She said the three month moratorium on payments of term loan installments (EMI) and interest on working capital, has given much desired relief.

The Reserve Bank of India on Friday cut the benchmark interest rates by 75 basis points to 4.40% in a surprise move that comes amid concerns over economic fallout from the global outbreak of COVID-19.

After the government announced a relief package to support labourers and daily wagers, the Reserve of Bank of India now come up with a slew of measures to minimise the economic impact from Covid-19. The repo has been cut by 75 basis points to 4.4 per cent - the lowest in at least 15 years.

In the face of this, Reserve Bank of India governor Shaktikanta Das was right to acknowledge in his Friday morning address that "tough times never last; only tough people and tough institutions do".

The RBI also permitted banks to provide a three-month moratorium on all term loans and said it stands ready to provide necessary liquidity and take all measures essential to preserve financial stability in the domestic economy.


According to RBI, the repayment schedule and all due dates may be shifted across the board by three months.

The six-member monetary policy committee (MPC) met earlier in the week to arrive at the decision. Also, the reverse repo rate has been dropped been cut by 90 basis points to 4% to support the economy going. "Borrowers have been made dependent on the bank concerned and will be disappointed", the former finance minister said.

Q: Which are the loans covered under moratorium? The central bank said it has chose to retain its accommodative stance as long as it is necessary to revive growth and mitigate the impact of coronavirus on the economy, while ensuring that inflation remains within the target.

All commercial banks, co-operative banks, all-India financial institutions and NBFCs (housing finance companies and micro-finance institutions). Its rate cut follows similar actions by other central banks around the world. The weighted average term deposit rate at 6.52% in January 2020 is lower than the interest rates on different small saving schemes of the government. This will help retain individuals in employment which may be hard otherwise. "Interest-free working capital loans are the need of the hour for SMBs", says Surabhi Talwar, Cofounder of Happy Jars.

Though the RBI's comprehensive measures are welcome and meet most market expectations, the baton now passes on to the most critical component of the economy - the financial sector. It helps in putting a control on the amount of money supply in the economy. Till that time, we can all remain optimistic. Rucha Ranadive, Economist CARE Ratings also contributed to this article.

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