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RBI Announces Economic Policy Measures

In the midst of the coronavirus pandemic- how does it impact the common man? On 27th March 2020, the RBI Governor announced certain measures to mitigate the sufferings of the capital market and the common man. Let’s highlight some of the main points:

RBI announces a cut in the Repo Rateby 75 basis points to stand now at 4.40% & the Reverse Repo Rate by 90 basis points to stand now at 4.00% (Repo rate is the interest rate at which commercial banks can borrow from RBI & reverse repo rate is vice-versa)

Good  News

  • Good for equity investors in the stock market
  • Bank loan borrowers whose EMIs would reduce
  • It means good news to new borrowers who can go for loans at cheaper rates of interest than before

Bad news

  • It would reduce the fixed deposit income due to rate cuts on the FD rates of banks
  • Since senior citizens park a large amount of their pension/savings in FDs, the heartache is more

All the commercial FIs (including Commercial banks, NBFCs, Small Finance Banks, Cooperative banks & RegionalRural Banks) are being permitted to allow 3 months moratorium on payment of instalments in respect of all term loan EMIs outstanding& credit card dues as also deferred interest on working capital as on 31st March, 2020

 Good News

  • It means that for the next 3 months, no EMI would be deducted from the account of anyone who has an outstanding loan.
  • This will not affect the Credit Store of the borrower during this period
  • EMIs will resume as soon as the moratorium period gets over
  • This is good news for especially for the self-employed, whose income has taken a hit, in the wake of the lockdown
  • Moratorium on term loan, deferring of interest on working capital will not classify as default, not to impact credit history of borrower
  • It will not result in asset classification downgrade (non-repayments during this period shall not be considered for the purpose of NPA as per prudential norms)

Bad news

  • As this applies to all corporate loans, home loans, car loans. education loans & personal loans,  the banks/FIs profit will take a severe beating due to reduced interest income on the loan portfolio
  • For the loan borrower, this also means that additional interest burden will be on the outstanding part of loan during the moratorium (as no repayments have taken place during this period)

Reduction in Cash Reserve Ratio (CRR) of banks by 100 basis points to stand at 3%

Good News

  • For banks, this means that the release of more liquidity into the financial system- banks can now get more money to lend & add to their interest income & consequently profits
  • For the common man, this means more money will be available with the banks to lend- one can go in for a new loan for which the banks will be too ready to give

Accommodation under Marginal Standing Facility to be increased from 2% from SLR to 3% with immediate effect till June 30th, 2020

Good News

This means release of more cash flowing into the system, with consequent cascading effect on more liquidity available in the capital market

Also Read :-
Economic Package as announced by the Government of India

Smrati1 Kushwah

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