RBI extends EMI freeze for 3 months

Cuts repo rate by 0.4%; sees negative economic growth

As part of the central bank’s efforts to mitigate the impact of Covid-19 pandemic through credit boost, RBI governor Shaktikanta Das on Friday announced a 40 basis point cut to lower the repo rate from 4.4 per cent to four per cent.

The RBI has also announced an extension of the moratorium on loan EMIs by three months, i.e. August 31, 2020. The earlier three-month moratorium on the loan EMIs was ending on May 31, 2020. This makes it a six-monthlong moratorium on loan EMIs starting from March 1, 2020.

With this moratorium, EMI payments were not deducted from bank accounts, providing muchneeded liquidity to people. The EMI payments will restart only once the moratorium time period expires on August 31.

The moratorium on the payment of interest on working capital was also extended by three months. Interest accumulated for the six-month moratorium period can be converted into a term loan, Mr Das said.

Further, the RBI has increased bank exposure to corporates to 30 per cent of the group's net worth from the current limit of 25 per cent, a move that will allow lenders to give larger loans to companies.

Mr Das said GDP growth in 2020-21 is likely to be in the negative territory as the outbreak of Coronavirus has disrupted economic activities. This combined impact of demand compression and supply disruption will depress the economic activity in the first half of the current fiscal.

“India is seeing a collapse of demand. Private consumption has seen the biggest blow due to the Covid-19 outbreak, investment demand has halted. The government revenues have been impacted severely due to slowdown in economic activity," said the governor.

However, he said that the combination of fiscal, monetary, and administrative actions will create conditions for the revival of the economy in the second half of FY21.