RBI Cuts Repo Rate, Extends Relief on Loan Repayment by Another 3 Months Amid COVID-19

The Reserve Bank of India (RBI) announced the third round of monetary measures to boost the economy amid the lockdown caused by the Coronavirus pandemic.

During the press briefing, the RBI governor Shaktikanta Das announced a reduction in the policy repo rate under the liquidity adjustment facility (LAF) by 40 basis points (bps) to 4% from 4.40%. The marginal standing facility (MSF) rate and the bank rate are reduced to 4.25% from 4.65%. These rates were kept status quo in the second round of monetary measures announced by RBI in April.

Repo rate is the rate at which banks borrow money from the RBI, and the reverse repo rate is the short-term borrowing rate at which RBI borrows money from banks.

In April 2020, Mercom reported that the RBI reduced the fixed reverse repo rate under the liquidity adjustment facility (LAF) by 25 bps from 4% to 3.75%. Now, the reverse repo rate under the LAF is reduced to 3.35% from 3.75%. With this, RBI aims to achieve the medium-term target for consumer price index (CPI) inflation of 4%, which is well within the prescribed band of +/- 2%, while supporting growth.


Given the extension of the ongoing lockdown in the wake of COVID-19, the RBI has also decided to permit all commercial banks, financial institutions, and Non-Banking Financial Companies (NBFCs) to extend the moratorium on term loan installments from June 1, 2020, to August 31, 2020. On March 27, 2020, the RBI had permitted lending institutions to grant a moratorium of three months on the payment of the dues falling between March 1 and May 31, 2020. So, the total moratorium extension now stands at six months.

The extension has been made on:

  • Moratorium on the term-loan installments,
  • Deferment of interest on working capital facilities
  • Easing of working capital financing requirements
  • Payment of interest on working capital facilities for the deferment period
  • Extension for resolving stressed assets

“Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, can be shifted across the board by another three months,” the apex bank noted.

In support of the exporters, the RBI has decided to increase the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from the existing one year to 15 months, for disbursements made up to July 31, 2020.

The Export-Import (EXIM) Bank of India provides financial assistance to exporters and importers. Because of the pandemic, global trade has contracted while global financial markets have turned highly volatile and risk-averse. Considering this, the RBI has decided to extend a line of credit of ₹15 billion ($197.6 million) to the EXIM Bank for a period of 90 days from the date of availing with a rollover of up to a year.

The COVID-19 related disruptions to cross-border trade have imposed a slowdown in the manufacturing and sale of finished products, and delay in realization of sale proceeds, both domestically and overseas.

In turn, this has elongated the operating cycle for business entities, the RBI noted. At present, remittances for normal imports are required to be completed within six months from the date of shipment by the overseas supplier, except in cases where amounts are withheld towards a guarantee of performance. The bank has now decided to extend the time for the completion of remittances against normal imports from six months to 12 months from the date of shipment for such imports made on or before July 31, 2020.

“The measure will provide greater flexibility to importers in managing their operating cycles in a COVID-19 environment,” it added.

Previously, the Ministry of Shipping (MoS) issued a notice directing all major ports of the country to allow free storage time to all port users for the lockdown period. Under the remission of charges to port users, the Ministry directed the ports to allow deferment of annual lease rentals or license fees on a pro-rata (proportionate) basis without any interests for April, May, and June. However, this can be availed only on request from the lessee or licensee.

The Directorate General of Shipping (DGS), Mumbai, also had issued an advisory to shipping lines asking them not to impose any container detention charges on import shipments at Indian seaports to maintain proper supply lines in these tough times.

In a recent online survey conducted by Mercom India Research, almost 70% of the respondents said their business would be affected by over 15% because of the Coronavirus, while 83% of the survey participants expect solar component supply shortages because of Coronavirus. The Coronavirus pandemic is proving to be the solar industry’s biggest challenge this year, and the repercussions are being felt across industries all over the globe. Track all updates on Mercom’s live blog here.

 

image credit: Press Information Bureau, Government of India / CC BY