RBI ramps up economic support: What it means for different sectors
The Reserve Bank of India (RBI) on Friday announced several key measures including slashed interest rates, extended moratorium on loan repayments and permission for banks to lend more to corporates in an effort to support the economy which is likely to contract for the first time in over four decades.
The Reserve Bank of India (RBI) on Friday announced several key measures including slashed interest rates, extended moratorium on loan repayments and permission for banks to lend more to corporates in an effort to support the economy which is likely to contract for the first time in over four decades. The announcements came in the wake of crisis created by the coornavirus outbreak in the country. Here is a look what they mean for different sectors
The benchmark repurchase (repo) rate was cut by 40 basis points to 4 per cent, Governor Shaktikanta Das said announcing the decisions taken by the central bank's Monetary Policy Committee (MPC) that met ahead of its scheduled meeting in early June. Consequently, the reverse repo rate was reduced to 3.35 per cent from 3.75 per cent. It will give relief to both auto as well as home loan borrowers.
The Central Bank has also decided to extend the EMI relief to another three months.
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“The borrowers also get a relief of an additional 3 months moratorium. The worry that there is a need for immediate repayment once the moratorium ends has also been addressed by the RBI. The leeway given to convert working capital to FITL to be repaid by end of the financial year is also an additional relief measure,” Veena Sivaramakrishnan, partner, Shardul Amarchand Mangaldas & Co explained.
Bank exposure to corporates has been raised to 30 per cent of the group's networth from the current limit of 25 per cent, a move that will allow lenders to give larger loans to companies.
However, Sivaramakrishnan believes that both banks and financial institutions will continue to worry.
“Their access to committed cash flow continues to remain in suspension and in the already stretched system, banks will find it a challenge to meet the growing needs of financing, the demand for which will continue to be on an increase. With IBC suspension being on the anvil, while provisioning and asset classification benefits will extend, banks in India will continue to face a challenge with their assets, especially with the moratorium being further extended,” she explained.
“Access to capital on a cross border basis from the FPIs is the need of the hour at this stage. Further liberalisation in the VRR route, by granting an additional 3 month period to bring in the 75% of the committed amounts under the VRR route is a welcome change and will ensure that the committed financiers get a breathing space and evaluate the commitments before funding,” Sivaramakrishnan said.
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