No change in repo rate, says RBI Governor

Reserve Bank of India on Thursday announced a no change in the repo rate as the financial regulator has already reduced it by 115 basis points. Currently, the repo rate is 4 per cent.

The central bank also announced restructuring of corporate and MSME loans and further increased the limit of loans that can be taken against gold ornaments and jewellery.

Due to strangled economic situation, the (RBI) enabled banks and NBFCs a three-month loan moratorium on instalments from March to May 2020. It was also extended up by an additional 3 months up to August 31, 2020. 

The extension of loan moratorium aided those who were put under the monetary pressure brought by the coronavirus pandemic such as the borrowers, the homebuyers & real estate developers. However, RBI has left it up to the financial institutions whether to grant or withhold the moratorium depending on an individual’s profile of borrowings. According to the reports, RBI is again looking to extend the moratorium period. 

MSMEs has requested the Reserve Bank of India (RBI)  to extend loan moratorium for another three months due to the issues like delayed payments, non-availability of labour, and low demands worsening the situation. While RBI has projected non-performing assets to rise to 14.7 per cent in the worst-case scenario, the MSME industry body fears it can go up to 35 per cent by December 2020. Under the Emergency Credit Line Guarantee scheme, public and private sector banks distributed Rs 82,065.01 crore to the eligible borrowers as of 23 July. 

Some of the benefits of extension of the loan moratorium include significant time for the developers to manage their finances. The residential sales are gradually increasing as the lockdown is being lifted in phases. The developers will get enough time to collect funds through sales and later service their loans through such funds as soon as the moratorium period ends. An added advantage is that the non-payment of EMIs on time will not lead to banks’ bad books. 

This will also offer the individual borrowers, both self-employed or salaried, an opportunity to regain financial clarity. Those facing the problems with servicing their car, home, and personal loans will be beneficial from it. The financial institutions will not take any action against the individual borrowers for the non-payment of instalments, which would anyway affect their credit score. The RBI assures that taking this moratorium will not be regarded as a default for the concerned period. 

However, the credit rating analysts and lenders have requested the RBI to not extend the moratorium on loan repayment any further as the extension for the same may lead to a surge in non-performing assets (NPAs) in the financial sector. The HDFC chairman Deepak Parekh has urged the RBI Governor to not extend the moratorium. 

“Please do not extend the moratorium. Because we see that people who have the ability to pay are taking advantage under this moratorium and deferring payment. There is talk of another extension which is going to hurt us, the smaller NBFCs particularly,” Parekh said.