EMIs put on hold, interest rates cut
New Delhi: The Reserve Bank of India (RBI) on Friday allowed banks to put on hold EMI payments on all term loans for three months as it slashed the cost of fresh borrowing by cutting policy interest rate by steepest in more than 11 years, joining the efforts of the government to counter the economic fallout of the fast-spreading Coronavirus pandemic.
The RBI, which brought forward by a week the key meeting of the monetary policy committee, also announced steps to boost liquidity worth 3.2 per cent of the Gross Domestic Product and said it will retain its accommodative stance as long as it is necessary to revive growth and mitigate the impact of the pandemic on the economy.
The benchmark repurchase or repo rate was slashed by 75 basis points to 4.40 per cent from 5.15 per cent, while the Cash Reserve Ratio — the amount of deposits banks must set aside as reserves — was cut by 100 basis points to 3 per cent to boost liquidity.
The biggest rate cut since January 2009 takes interest rate to the lowest in more than a one-and-a-half decade (lowest since October 2004). The reverse repo rate was reduced 90 basis points to 4 per cent, creating an asymmetrical corridor.
RBI Governor Shaktikanta Das said all commercial banks have been permitted "to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020".
However, the decision on the rescheduling of home, auto, and other loans will finally be taken and conveyed to customers by individual banks.
Individuals and companies who have availed term loans — such as home loans, car loans, corporate loans — can benefit from this move.
The moratorium on loan repayment between March 31 and May 31, is applicable on all types of retail credit, including credit card outstanding balances, the Reserve Bank said on Friday.
However, the RBI refrained from making any projections for growth and inflation saying the performance of these two key macroeconomic parameters in the days ahead would depend upon the intensity, spread and duration of COVID-19.
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