RBI holds rates, allows loans to be restructured
Pauses rate cuts for now; maintains accommodative monetary stance
While the Reserve Bank of India held interest rates steady Thursday and disappointed borrowers by not extending the loan moratorium in its monetary policy, it announced a one-time restructuring of loans for personal loan borrowers, corporate borrowers and micro, small and medium enterprises hit by the Covid-19 pandemic. The restructuring will be allowed under the prudential framework issued on June 7, 2019, RBI governor Shaktikanta Das said.
Mr Das said: “The disruptions caused by Covid19 have led to heightened financial stress for borrowers across the board… Accordingly, it has been decided to provide a window under the 7 June Prudential Framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures, without change in ownership, as well as personal loans, while classifying such exposures as standard assets, subject to specified conditions.” Personal loans include those given to individuals and include consumer credit, education loans, loans given for the creation or enhancement of immovable assets and loans given for investment in financial assets like shares and debentures, under RBI’s rules.
Under the RBI’s Resolution Framework for Covid-related Stress, the resolution of stressed personal loans will be available only to those who repaid their loans regularly till March 1, 2020. The borrowers’ acc-ounts will continue to be classified as standard till the date of invocation of the resolution. “The resolution may be invoked not later than December 31, 2020 and must be implemented within 90 days.”
Belying expectations, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Thursday kept rates unchanged on Thursday owing to uncertainty around inflation despite signs of growth faltering further. The MPC voted to maintain an accommodative stance, thus opening up possibilities for more future rate cuts.
“While economic activity had started to recover from the lows of AprilMay, a surge in fresh infections have forced reclamping of lockdowns in several cities and states to “level-off” various highfrequency indicators,” RBI governor Shaktikanta Das said in his monetary policy address.
The MPC expects headline inflation to remain elevated in Q2FY21 and sees it easing in the second half of the financial year. For 2021, the real GDP growth is expected to be negative.
It refrained from providing growth-inflation forecasts while sticking to the direction based guidance.
“Real GDP growth in the first half of the year is estimated to remain in the contraction zone. For the year 2020-21 as a whole, real GDP growth is also estimated to be negative,” Das said.
He said that the RBI will do whatever is required to revive the economy in the wake of the pandemic.
“With Covid-19 infections rising under fragile micro-economic and financial conditions, we propose to take regulatory and developmental measures, enhance liquidity support for financial markets, ease financial stress while strengthening credit discipline, improve the flow of credit, deepen digital payment systems and facilitate innovations by leveraging technology.”
He said there is enough liquidity at present and that the RBI is using several other monetary operations to boost liquidity in the banking system.
All the six members of the MPC voted for a status quo in rates.