EMIs deferred! RBI extends loan moratorium by another 3 months

The loan moratorium has now been extended till August 31 for 6 months

RBI also announced a cut in repo rate by 40 bps RBI also announced a cut in repo rate by 40 bps

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday announced an extension in the moratorium on payment of all term loans by another three months to help borrowers. The loan moratorium has now been extended till August 31 for 6 months. "In  view  of  the  extension  of  the  lockdown  and  continuing  disruptions  on  account  of  COVID-19,  it  has  been  decided  to  permit  lending  institutions  to  extend  the  moratorium on term loan instalments by another three months, i.e., from June 1, 2020 to 4 August 31, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by another three months," RBI said.

In March, the central bank had allowed a three-month moratorium on payment of all term loans due between March 1 and May 31. SBI Research had recently said that with the government extending the nationwide lockdown up to May 31, the RBI may extend the moratorium on repayment of loans for three more months.

In other announcements, RBI increased the export credit period to 15 months from 1 year and also extended Rs 15,000 crore line of credit to EXIM Bank.

It was the third address by the RBI Governor during the ongoing lockdown. The first address by Shaktikanta Das amid the lockdown was on March 27 and the second was on April 17. The central bank has infused funds totalling 3.2 per cent of GDP into the economy since the February 2020 monetary policy meeting.

"It was indeed a good policy by RBI . Extension of moratorium and converting the interest into term loans which essentially increases the payback cycle , swap facility for exim banks , extension of import payments and increasing the exporters length of credit to 15 months from one year are steps in the right direction and eases the liquidity situation with export and import companies. Rate cut and reverse repo rate cuts are moves in the right direction but risk aversion by banks is still there. Some restructuring of the loans news would have been  a step in the right direction which the market was awaiting. Broadly it may be better for companies but banks may get hit in the short term," Abhishek Goenka, Founder & CEO, IFA Global, said.

"RBI Governor in his third press briefing in the last two months, informed that the world's fifth largest economy may enter in negative territory in FY 2020-2021. To revive the growth RBI has gone for accommodative policy with reducing repo rate by 40 bps. RBI also extended the three-month moratorium of loan repayments, from June 1 to August 31 and pre and post shipment of credits increased from 1 year to 15 months. All these monetary measures are aimed to revive growth in the H2 of FY 21," Kuntal Sur, Partner and Leader- Financial Risk and Regulation, PwC India, said.

"Moratorium extension is the need of the hour.We are extending moratorium to all borrowers across all segments. This will now continue upto august 2020 in accordance with RBI dispensation Conversion of interest on working capital loans for the moratorium period into FITL will give a breather to the borrowers. The time period for repayment of that component could have been longer than just 7 months. Increase in Group exposure limits will help big companies tide over hurdles in raising funds from market," Padmaja Chunduru, MD, CEO Indian Bank, said.

Earlier, Shaktikanta Das said that the monetary policy committee (MPC) believes that the headline inflation should remain firm in the 1st half of 2020 and should ease in the second half of 2020, aided by favourable base effects.

RBI also announced a cut in repo rate by 40 bps. The reverse repo rate now stands at 3.35 per cent."COVID Pandemic has crippled the global economy. We must have faith in India's resilience & come out of all odds," RBI Governor said.

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