The Government of India and Reserve Bank of India have taken various steps to counter the fallout on economy due to fast-spreading coronavirus pandemic across globe.

Food for Poor

On 26 March, Finance Minister Nirmala Seetharaman announced a relief package of Rs 1.7 lakh crore to be used for providing a safety net for poor who have been hit the hardest by the Covid-19 lockdown. About 80 Cr people will get free cereals and cooking gas apart from direct cash transfers for three months.

PF Contribution

Providing relief to organised sector, the FM said that the  government will pay the entire PF contribution of all earning less than Rs 15,000 per month in the companies having less than 100 workers as they are at most risk of losing their jobs. This amounts to 24% of basic pay i.e. 12% from the employee and 12% from the employer. This contribution will be paid by the government for next three months.

Extension of Date of filing return for FY 2018-19

On the other hand last date for income tax returns for FY 2018-19 was also extended from March 31, 2020 to June 30, June 2020. Also, as per the announcement of the FM, the timeline for tax-saving investment for the FY 2019-20 has been extended till June 30, 2020.

 

On 27 March, RBI Governor, Shaktikant Das, literally opened the coffers of the central bank to the banks and other lending financial institutions so that they can go out and lend, lend, and lend.

Interest Rates to ease

In one stroke, Das cut repo rates by 75 basis points and slashed CRR Cash Reserve Ratio by 1 per cent to 3 per cent, ensuring liquidity in the economy and credit to all segments of society. Today’s measures will add liquidity worth Rs 3,74,000 crore in the coming months. Add another Rs 2,80,000 crore of liquidity that was unleashed earlier this year, RBI has expanded liquidity worth nearly 3.2% of gross domestic product (GDP) in just a few weeks’ time.

Boost to Lending  Change in criteria for NPA

Simultaneously, regulatory requirements have also been eased, with term lenders including home loan companies. The lenders have been asked to give three months of moratorium to the borrowers. Working capital accounts are also being given a similar relief for interest payments due as of 1 March 2020. This means that even if a company doesn’t service its loans for three months the account will not fall under “NPA”.

The message to bankers and the financiers is that it’s not the time to worry about bad loans but to grow the loan book even if it has huge risks with the quality of the lending.

Mudra Loans

Similar message came from the FM yesterday when she said self-help groups will be given collateral free loans of up to Rs 20 lakh. Mudra loans will also be ramped up.

The RBI today shouted the lend, lend and lend more message by widening the gap between the repo and reverse repo from 0.25% to 0.4% which means that RBI will lend to banks at 4.4% but will accept the deposits from banks at 4 per cent.

This means banks are being goaded to lend instead of idly park their excess deposits with RBI. They will also be asked to lend more to the companies by buying up their commercial paper hence opening up an indirect line of funding for non-banks and others.

Implications

The implications of today’s announcements by RBI are huge.

Both deposit and lending rates will fall as banks ramp up lending. Not only borrowers will get relief both on rates and repayment periods but also the NBFCs will get a lifelines that they didn’t get earlier. They are being indirectly fused to the main banking system.

Frequently asked Questions

Here are few questions, asked by some of our clients, which can clear the doubts on this decision.

Q: My EMI is due in April. Will the payment be deducted from my account?

A: The RBI has said it has ‘only’ allowed banks to allow a moratorium. Further guidelines are awaited if banks will have to separately approve suspension of EMIs, either on an individual or at the bank level. However, in case of SBI chief Rajnish Kumar said that all EMIs on term loans stand cancelled. Rest you may check with your Bank.

Q: How will the process work at the bank level?

A: All banks will have to get a decision of allowing moratorium to their borrowers approved at their board level.

Q: Will non-payment result in impact on my credit score?

A: No. Credit score will not be impacted.

Q. Which banks can offer this deferment to their customers?

A: All commercial banks can offer.

(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) included.

Q. Is this a waiver of EMIs or a deferment of EMIs?

A: There is no waiver, but deferment only. RBI has recommended that the repayment schedule and subsequent due dates and the tenor for such loans can be shifted across the board by 3 months.

Q: Does the moratorium cover both principal and interest?

A: Yes. It covers both. You can be exempted from payment of your entire EMI, including payment and interest for three months. This will be applicable on all loans outstanding as on March 1, 2020.

Q. What kind of loans does the moratorium cover?

A: The RBI policy statement explicitly mentions term loans which includes home loans, personal loans, education loans, auto or any loans which have a fixed tenure.

Q: Does the moratorium cover credit card payments?

A: No. Since credit cards are classified under revolving credit and not term loans, these are not covered under the moratorium.

Q: What has the RBI announced for businesses?

A: The RBI has allowed deferment for of servicing of the loan or interest payments for all working capital loans taken by businesses outstanding as on March 1, 2020. It is to be noted that the accumulated interest for the period will be due after the expiry of the deferment period.

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