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Tata Capital > Blog > RBI Regulations > RBI Press Conference on Monetary Relief Measures in the Time of COVID-19: Key Takeaways

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RBI Press Conference on Monetary Relief Measures in the Time of COVID-19: Key Takeaways

RBI Press Conference on Monetary Relief Measures in the Time of COVID-19: Key Takeaways

The COVID-19 pandemic has caused wide-spread disruption throughout the world. In addition to causing health-related distress, the pandemic has also had a significantly adverse impact on the global financial and economic environment. Quick on the heels of India’s Finance Minister Nirmala Sitharaman’s relief package announcement, the Reserve Bank of India also stepped in to declare a slew of financial relaxations to tackle the situation.

In a press conference made today, the RBI Governor Shaktikanta Das came out with several measures to stem the distress on the country’s economy. Here are the most important takeaways and highlights from the RBI announcement.  

Moratorium on EMI payments

The Reserve Bank of India has given permission to all lending institutions such as NBFCs, financial institutions, and banks, both commercial and co-operative, to allow a 3-month moratorium on EMI payments on all term loans outstanding as on March 1, 2020. This measure would undoubtedly ease the amount of financial stress piling up on the common public due to wide-spread lockdowns and restrictions.

However, according to the RBI announcement, it has merely given the go-ahead to lending institutions to allow a moratorium on EMIs. The onus is now on these institutions to follow through and declare a temporary deferment of term loan EMI collections. If you’re currently servicing any term loans, contact your lending institution to get a confirmation on the implementation of this moratorium.

Deferment of interest on working capital

The measures for financial relaxations were also extended by the RBI to cover corporates, MSMEs, and other legal entities currently servicing working capital facilities. As per the RBI announcement, all the lending institutions in India are being allowed to grant a temporary suspension on the payment of interest on working capital facilities outstanding as on March 1, 2020.

Similar to the RBI’s moratorium on EMI payments, this deferment on the payment of interest on working capital facilities would also be valid for 3 months. Additionally, this deferment would be applicable on all kinds of working capital sanctioned, including both cash credit and overdraft facilities. The interest payable on such facilities would still continue to accumulate and shall be payable only after the deferment period expires. Here too, the onus of declaration of interest deferment rests on the lending institutions.

Easing of working capital financing

This is another major measure taken by the RBI as part of providing financial relaxations to companies, MSMEs, and other legal entities. According to the RBI announcement, lending institutions are free to recalculate the working capital cycle of all borrowers who have availed working capital by way of cash credit or overdraft facilities. Additionally, the institutions are also permitted to reassess the drawing power of the borrowers by reducing margins.

The Reserve Bank of India has assured the lending institutions that any of the above-mentioned changes in the terms of working capital credit would not result in a downgrade in asset classification. This effectively means that these concessions would not convert the assets of the lending institutions into non-performing assets (NPAs).

The RBI announcement has also further clarified that the temporary suspension of payment of term loan EMIs, interest on working capital, and any other changes in the working capital facilities would not be classified as a default by Credit Information Companies (CICs). Also, the CICs have been instructed to make sure that the credit history of the relevant parties is in no way adversely impacted by these announcements.

Other key financial relaxations and measures

In addition to these three important relaxations, the RBI has also announced several other measures to help combat the slump in the economy. Briefly listed below are some such measures.

  1. To kick start growth, the RBI decided to maintain an accommodative stance with the monetary policy.
  2. The repo rate was significantly reduced by 75 basis points, with the current repo rate standing at 4.4% after the cut.
  3. The reverse repo rate was also cut by 90 basis points, bringing it down to just 4%.
  4. Introduction of several liquidity-boosting measures such as auctioning of targeted term repos worth Rs. 1 lakh crore and reduction in the Cash Reserve Ratio (CRR) of banks by 100 basis points to 3%.
  5. The RBI has also made a reduction in the minimum daily CRR requirement to 80% from the existing 90% and increased the Marginal Standing Facility (MSF) limit to 3% from 2%.
  6. The implementation of Net Stable Funding Ratio (NSFR), which was supposed to go live from April 1, 2020, has been deferred by six months to October 1, 2020.
  7. The implementation of the last tranche of Capital Conservation Buffer (CCB) of 0.625% was also deferred to September 30, 2020.
  8. Banks that operate under the International Financial Services Centre (IFSC) Banking Units are now permitted to deal in Offshore Non-Deliverable Rupee Derivative Markets. 

Conclusion  

Given the current scenario, these measures appear to be the need of the hour. However, it remains to be seen whether they alone will be sufficient or whether they will need to be supplemented with more fiscal relief measures, depending on how the course of the global pandemic plays out in the Indian context.

To know in detail about the RBI’s Moratorium, click on the know more button below.

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