As a part of decisions taken to mitigate the impact of COVID-19 on economy, the Reserve Bank of India Governor on Friday announced that all commercial banks and non-banking financial companies are permitted to allow 3-month moratorium on the payment of installments of term loans outstanding as on March 1, 2020.
In respect of working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the deferment period.
"The moratorium on term loans & deferring of interest payments on working capital will not lead to asset classification downgrade", RBI Governor Shaktikanta Das clarified.
These (moratorium of 3 months on term loans and 3-month deferment of interest on working capital) will not create any adverse impact on the credit history of the beneficiaries, said the Governor.
The RBI Governor also announced decisions to increase cash flow and to inject liquidity into the system. They are :
- RBI repo rate reduced by 75 basis points to 4.4%. Reverse repo rate reduced by 90 basis points to 4%.
- RBI will conduct auctions of Targeted Long Term Repo Operations of three year tenure for a total amount of Rs one lakh crore.First auction for Rs 25,000 crores will be conducted later today.
- Cash Reserve Ratio (CRR) of all banks reduced by 100 basis points to 3 percentage. This is expected to release liquidity of Rs 1.37 lakh crores.
- Requirement of minimum daily CRR balance maintenance from 90 per cent to 80 percent, effective from the first day of the reporting fortnight beginning March 28, 2020.
- Accommodation of Marginal Standing Facility to be increased from 2% SLR to 3% with immediate effect.
Relevant extract from RBI Governor's statement on Liquidity Measures in form of increase in Marginal Standing Facility accommodation and widening of monetary policy rate corridor.#RBIActs #rbigovernor pic.twitter.com/QcZUg9o38J— Live Law (@LiveLawIndia) March 27, 2020
Implementation of Incremental Capital Conservation Buffer has been deferred from March 30, 2020 to September 30, 2020.
These measures are expected to inject total liquidity worth Rs 3.74 lakh crores to the system.
"Time has come for RBI to unleash several instruments from its arsenal to preserve financial stability", RBI Governor said.
He assured that the Indian banking system was "safe and sound" and urged the public to not to resort to "panic withdrawal" of funds.
Due to the COVID-19 outbreak, the estimate of 5% GDP for the Financial Year as a whole is at risk.
These decisions were taken following by a meeting by RBI's Monetary Policy Committee (MPC )which was advanced in view of the present crisis.
The Union Ministry of Finance had on Thursday announced a relief package worth Rs 1.70 lakh crores for the benefit of poor and marginalized in view of the lockdown.