oppn parties RBI Reduces Rates, Extends Moratorium And Grants The Facility of FITL

News Snippets

  • Maratha quota bill likely to be tabled in Maharashtra assembly today
  • Arvind Kejriwal skips ED summons for the 6th time, says the case is in court and will follow court's decision
  • PM Modi says UP has gone from 'red tape' to 'red carpet' in 7 years of 'double engine' government
  • Farm unions reject government offers, to resume Delhi march from today
  • Centre says some Aadhar cards in Bengal 'deactivated' due to technical glitz, will be activated back soon
  • Supreme Court stays LS privilege panel summons to Bengal officials over BJP MP Sukanta Majumdar injury case
  • Supreme Court junks Sandeshkhali petition, says it cannot be compared to Manipur, asks petitioner to approach Calcutta HC
  • Supreme Court gets tough on Chandigarh mayoral elections, asks for ballot papers and video footage, does not order re-election
  • Government starts withdrawing old small tax demands, up to Rs 25000 per entry till FY 2009-10 and up to Rs 10000 per entry from FY 2010-11 to FY 2014-15 with an overall ceiling of Rs 1 lakh per tax payer
  • Stocks remained positive on Monday: Sensex gained 281 points to 72708 and Nifty 81 points to 22122
  • Jasprit Bumrah likely to be rested for 4th Test while K L Rahul may be back
  • FIH Pro League hockey: India beat Spain 8-7 in shootout
  • SP leader Salim Sherwani, miffed at no Muslim candidate given RS ticket, quits party
  • Army going for big (Rs 57000cr) upgrade in combat vehicles to replace T-72 tanks
  • Mamata Banerjee says the BJP is doing nothing to resolve the Sandeshkhali dispute but instead fanning the fires to escalate it
History created in Supreme Court as Chandigarh mayoral poll ballots counted in court, judges declare AAP candidate Kuldeep Kumar winner after taking into account the votes defaced by returning officer Anil Masih
oppn parties
RBI Reduces Rates, Extends Moratorium And Grants The Facility of FITL

By Sunil Garodia
First publised on 2020-05-22 21:27:21

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

The Monetary Policy Meeting of the RBI met in Mumbai today. In view of the continuing Covid-19 crisis and the economic situation arising out of it, the MPC reduced both the repo rate by 40 bps. Consequently, the reverse repo rate also got reduced by 40 bps. The repo rate now stands at 4 percent and the reverse repo rate at 3.35, just a shade more than the historic low of 3.25 percent in 2008 after the global financial crisis. The MSF rate stands at 4.25%. In addition, the RBI also extended the loan moratorium by three months until August, 2020. It also allowed borrowers to opt for converting the additional interest burden arising out of deferring their loan repayments into a funded interest term loan (FITL) that has to be repaid by the end of March 2021.

The latest intervention by the apex bank is in line with the position of the economy. The committee was of the view that the outlook is highly uncertain and GDP will see contraction and might be in the negative territory in FY21. The committee was also of the view that inflation might go below 4% in the last two quarters of this financial year and hence it kept its accommodative stance.

Despite economic activities being allowed to be restarted as the lockdown is close to being lifted completely, it will take at least two to three quarters for things to return to normal. The reduction in repo rate will make loans cheaper and will provide relief to a large cross-section of borrowers while the reduction of reverse repo rate will ensure that the banks will have no incentive in parking excess funds with the RBI. Since the government has put the entire onus on commercial banks to lend to almost all the sectors of the economy in its Covid-19 economic package, it needed to prod them to earnestly do so.

Similarly, if the loan moratorium was not extended it would have caused immense hardships to both individuals and businesses as they would have had to pay the entire lump sum (EMI plus overdue interest)of the three EMIs of March, April and May in June. With jobs and salaries not guaranteed and with businesses not back on track, there would have been many defaulters. The breathing space allowed (although one feels that it should have been extended until November, with payments in December) will mean that many borrowers will be able to escape being defaulters if things improve by that time. The benefit of converting the accrued interest during this period to FITL comes as a bonus.