Reserve Bank of India puts hold on Housing Loan EMI’s for the next three months.

The Reserve Bank of India joined the huge battle on March 27 with a host of steps aimed at mitigating the harm from Covid-19 a day after Modi govt started his economy rescue in right earnest with a Rs 1.70 lakh crore coronavirus counter.

Those steps come just hours after Moody’s Investors Service reduces India’s development forecast from 5.3% to 2.5% for the 2020 calendar year.

The MPC agreed by a majority of 4-2 to cut the repo rate to 4.4% by 75 basis points. The reverse repo rate was decreased to 4% by 90 bps, establishing an asymmetric corridor.

EMI Relief:

It has declared a three-month EMI moratorium on all outstanding loans. The statement says: “All corporate, federal, rural, NBFCs and small finance banks are required to enable a 3-month moratorium on payment of instalments in respect of all outstanding EMIs on March 31 term loans.” No EMI will be deducted from the account of someone who has an outstanding loan for the next three months. And all of this, without any credit score damage. EMIs are to start after the time of moratorium is finished.

This will be a huge relief for all EMI payers, especially those — like the self-employed — whose income had become uncertain in the aftermath of the lockdown.

The three-month pause applies to business loans, house loans and auto loans. This would also apply for personal loans. Yet credit card payments do not be part of this ban, as it is not a term loan.

Three-way injection of liquidity

Das also announced at the Presser:

i) Auction of planned 3-year tenor long-term repo operations for total Rs 1,00,000 crore at a floating rate.

ii) Reduction of CRR by 100 basis points for all banks. Rs 1,37,000 crore will be released across the banking sector.

iii) Accommodation to be expanded from 2% from SLR to 3% with the immediate impact until June 30 under the Marginal Standing Facility. It will have Rs 1.37 lakh crore released into the network.

Combined, these three steps would render open the country’s financial system a minimum of Rs 3,74,000 crore. The banking system is secure and sound, the governor asserted, adding that tying share prices to the fate of the banks would be fallacious.

He implored Indians that they would not fear their bank deposits.

The RBI had been on a pause since December in view of rising inflation after five times lowering policy rates in the last year. RBI’s Monetary Policy Committee (MPC) had arranged an unscheduled meeting to zero in on potential emergency steps earlier this week.

Asia’s third-largest economy has been locked down since March 25 for three weeks, putting millions of everyday wage earners and lakhs of businesses in unparalleled hardship.

Earlier the Secretary of Financial Services wrote to RBI requesting a moratorium on EMIs, interest and loan repayments for a few months.

A relaxation was also pursued in the NPA classification criteria with a view to supporting those experiencing income losses.

Any default in payments must be acknowledged within 30 days under RBI rules and such accounts must be listed as “special mention accounts.” Experts claim a reclassification is important to ensure that firms survive the coronavirus attack, even for the time being at the expense of the banks.