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As the country battles against the deadly Coronavirus, India’s Central Bank made a key announcement on Friday, March 27, 2020, providing much-needed relief to the middle class and small business enterprises. In a press conference, RBI governor, Shaktikanta Das, informed that the RBI’s Monetary Policy Committee (MPC) met ahead of time and after a thorough evaluation of the country’s macroeconomic and financial conditions, took two major decisions. The MPC voted for:
The governor in his statement said that "All commercial banks (including regional rural banks, small finance banks, and local area banks), co-operative banks, all -India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) ("lending institutions") are being permitted to allow a moratorium of three months on payment of installments in respect of all term loans outstanding as on March 1, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such a loan may be shifted across the board by three months. "
The relief provided by a moratorium means that no penal action will be taken against any individual who fails to make repayment of any installment due between March 1, 2020, till May 31, 2020, and going by the statement availing such moratorium will not lead to a downgrading of the borrower's credit rating or affect the loan risk classification. Furthermore, the use of the moratorium does not result in any alteration to the current terms and conditions of the loan. If the current terms and conditions of the loan include moratorium-related conditions/charges, then these can extend depending upon the bank’s policy.
Usually, if a borrower fails to repay any dues then the borrower’s credit history and risk classification are adversely affected, creating problems while availing loans in the future, however, under these circumstances the RBI assure that the credit rating will not be deferred.
Apart from the above, the Governor stated that the reduction of repo rate and reverse repo rate is necessary to revive the economy and to make it less attractive for the banks to passively deposit funds with the Central bank and utilize the same for further lending.
Followed by RBI’s address, the Union finance minister Nirmala Sitharaman tweeted to say measures announced by RBI gave a “much-desired relief”.
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