In a big reprieve to borrowers, the Reserve Bank of India on Friday announced a three month moratorium on term loans outstanding on March 1, 2020 and reduced key policy lrates in order to mitigate the impact of corona virus and also to spur economic growth.
Addressing a press conference in the wake of spread of corona virus in the country, RBI Governor Shaktikanta Das said all banks, including small banks and lending insitituions should allow a moratorium of three months for repayment of instalments on term loan and that the non-payment of moratoriums will not be termed as default. The RBI governor says moratorium on term loans, deferment of interest payment will not result in asset classification downgrade.
He said the volatility in stock markets triggered by Covid-19 scare has adversely impacted share prices of banks as well as resulted in panic withdrawals of deposits from some private sector banks. The RBI governor tried to soothe the nerves of the depositors asking them not to resort to panic withdrawals. “Your finds are safe. Depositors should not resort to panic withdrawal of their deposits. I would urge those with deposits in private banks to not indulge in panic withdrawal. Covid-2019 is upon us but this too shall pass. Stay clean, stay safe and go digital,” he said.
“COVID-19 stocks the global economy and the outlook is highly uncertain and negative. Several nations are battling its exponential contagion. Countries are shutting down to prevent being sucked into a kind of black hole,” he said.
The RBI cut repo rate by a 75 basis points to 4.4% from 5.15%. It also reduced the reverse repo rates by 90 basis points. The rate cut is aimed at supporting economic growth for as long as is necessary and to mitigate the impact of Covid-19, he said.
“Priority is to undertake strong and purposeful action to protect domestic economy, Need for all stakeholders to fight against the pandemic and banks should do all they can to keep credit flowing,” he said.
In a tweet, finance minister Nirmala Sitharaman wrote “Appreciate Shaktikanta Das’s reassuring words on financial stability. The 3 month moratorium on payments of term loan instalments (EMI) & interest on working capital give much-desired relief. Slashed interest rate needs quick transmission.” RBI’s slew of measures come a day after Nirmala Sitharaman announced Rs 1.7 lakh crore economic welfare package for the poor in the backdrop of the coronavius pandemic.