Bengalur, NFAPost: Giving a major relief to term loan borrowers, who are facing cash crunch during the ongoing Covid lockdown, RBI has extended the loan moratorium by another three months till August 31 and addressed the concerns over accumulated interest of six months by converting it into a term loan.
This means that the term loan borrowers will have an option not to pay loan instalments for June, July and August. RBI Governor Shaktikanta Das said the term loan borrowers had raised concerns about the accumulated interest of six months on loan moratorium, so, to address it, the RBI would convert it into a term loan.
A term loan is a monetary loan that is repaid in regular payments over a set period of time. Term loans usually last between one and ten years, but may last as long as 30 years in some cases. A term loan usually involves an unfixed interest rate that will add additional balance to be repaid.
The earlier moratorium announcement by RBI was set to end on May 31. The loan moratorium will be extended till 31 August, said RBI Governor Shaktikanta Das. He added that the lending institutions are being permitted to restore the margins for working capital to the origin level by 31 March, 2021.
Making yet another major announcement to the relief of home and auto loan borrowers, RBI cut the repo rate by 40 basis points to bring it down from 4.4 per cent to 4 per cent.
“RBI’s Monetary Policy Committee met earlier and voted in the ratio of 5:1 in favour of the repo rate cut. The Reverse repo rate stands reduced to 3.35 per cent,RBI Governor Shaktikanta Das.
Lauding his team, Das said the apex banker has been proactively working to deal with Covid situation. Das said retail inflation, measured by the consumer price index, moderated for the second consecutive month in March 2020 to 5.8 per cent after peaking in January. “This was mainly due to food inflation easing from double digits in December 2019 – January 2020,” he said.
In April, however, supply disruptions took a toll and reversed the softening of food inflation, which surged to 8.6 per cent from 7.8 per cent in March and prices of vegetables, cereals, milk, pulses and edible oils and sugar emerged as pressure points, Das said.
“The inflation outlook is highly uncertain. As supply lines get restored in the coming months with gradual relaxations in the lockdown, the unusual spike in food inflation in April is expected to moderate,” RBI Governor Shaktikanta Das
The forecast of a normal monsoon also portends well for food inflation, Das said. International crude oil prices are likely to remain low given the current global demand-supply balance, though they may firm up from the recent depressed levels, he said.
Soft global prices of metals and other industrial raw materials are likely to keep input costs low for domestic firms and deficient demand may hold down pressures on core inflation, although persisting supply dislocations impart uncertainty to the near term outlook, Das said.
“However, volatility in financial markets could have a bearing on inflation. These factors, combined with favourable base effects, are expected to take effect and pull down headline inflation below target in Q3 and Q4 of 2020-21,” he added.
Domestic economic activity has been impacted severely, he said, adding that high frequency indicators point to a collapse in demand beginning March 2020 across both urban and rural segments.
“The only silver lining is provided by agriculture. The summer sowing of rice, pulses and oilseeds is progressing well and total area sown under kharif season is up by 43.5 per cent so far, and rabi harvest promises to be a bumper as reflected in record procurement,” RBI Governor Shaktikanta Das.
High frequency indicators of service sector activity such as passenger and commercial vehicle sales, domestic air passenger traffic and foreign tourist arrivals also experienced sizable contractions in March, he said.
In the light of stress on state government finances due to covid lockdown, Das said the RBI has decided to relax the rules governing withdrawal from the CSF, while ensuring depletion of the fund balance done prudently.
“This will enable states to meet a larger proportion of their redemption of market borrowings falling due in the current financial year from the CSF. These relaxations to states will release an additional amount of about Rs 13,300 crore,” said RBI Governor Shaktikanta Das.
“In respect of all accounts for which lending institutions decide to grant moratorium/deferment, and which were standard as on March 1, 2020, the 90-day NPA norm will also exclude the extended moratorium/deferment period. This means that there would be an asset classification standstill for all such accounts during the moratorium/deferment period from March 1, 2020 to August 31, 2020. Post this, the normal ageing norms will apply,” RBI Governor Shaktikanta Das.
Das said rescheduling of payments on account of the moratorium or deferment will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by lending institutions.
He added that CICs should ensure that the actions taken by lending institutions in pursuance of the announcements made today do not adversely impact the credit history of the borrowers.