Targeted long-term repo (repurchase agreement) operations of up to one trillion rupees and a three-month moratorium on repayment of term loans for all banks and shadow lenders starting March 1 were part of the steps. 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.
Rajan Bandelkar, National Real Estate Developer Council's (NAREDCO) Maharashtra president said, "The repo, reverse repo rate and CRR cuts would extend more lending powers to the banks". In order to discourage this arrangement and make it less attractive, the RBI lowered the reverse repo rate by 90 basis points to 4%. These measures will certainly provide relief to people and businesses. With these three measures, a total of INR 3,74,000 Cr will be infused to India's financial system, according to ET.
The Confederation of Indian Industry CII too lauded the decision.
While the above package is comprehensive no doubt, its key shortcoming is that the RBI is placing an overwhelming reliance on domestic banks to ensure the trickle-down of this stimulus to deserving segments of the economy.
The state has announced that the Ready Reckoner rates that are usually published before a new financial year begins will be published "once the coronavirus threat subside".
On rescheduling of payments for term loans and working capital facilities, the RBI further said, "The accumulated accrued interest shall be recovered immediately after the completion of this period".
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Information When would you have to pay the 3-month dues? This additional interest may either be added up to all your future EMIs or your loan tenure could get extended at the same EMI level. The RBI has explicitly mentioned that all commercial banks, cooperative banks, all-Indian financial institutions (AIFIs) and NBFCs/HFCs "are permitted" to allow a moratorium of 3 months on payments of instalments.
No, education loans, personal loans, auto loans, agriculture term loans, crop loans and consumer durable loans, such as EMIs on mobile phone, fridge and TV, are eligible as well-even borrowings from non-banking finance companies, housing finance companies and small finance banks. That means the interest you have to pay on your loan does not increase - you have to pay the same amount overall that you owed at the beginning of March. This will not affect your credit score either.
Business loans are unlikely to qualify. Although RBI does not clarify whether loans taken on credit cards will also be covered, it is assumed that they may be covered.
Such emergency situations may also encourage it to expand the scope of its asset purchase programme to consider corporate bonds and other non-gilt securities, either taking on credit risk directly to its balance sheet, or structure a special objective vehicle in conjunction with the government.
The RBI allowed banks to raise more funds under the marginal standing facility (MSF), a window from which banks can borrow funds from the RBI in emergency situations against their excess holdings of government securities. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by three months. Note that the interest charging meter of lenders will not stop and this interest will keep adding to your loan outstanding.