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

News Snippets

  • University vice-chancellors in West Bengal decide not to hold final-year examinations despite UGC prod, will instead go by the state government advised 80-20 formula where 80% will be marked on performance in past semesters and 20% on internal assessments in the final semester
  • The Centre wants the ITI and other top Indian firms to bid for 5G as Chinese firms Huawei and ZTE are not likely to be allowed to participate
  • India and China agree on total disengagement to return to peace ahead of the next round of military talks
  • The Supreme Court allows delivery of summons and notices via WhatsApp and email, but questions remain on proof of actual receipt
  • National Investigation Agency says the proceeds from the Kerala gold smuggling case could have been used for terrorist activities
  • Four Maoists shot dead in Valmiki Tiger Reserve in Bihar
  • Despite localized lockdown, Covid cases continue to rise at an alarming rate in West Bengal. Newer areas brought under containment zones in Kolkata
  • ICSE, ISC results declared, Average scores in the English paper, 20% lower this year than the average in most years, pulls down the aggregate for most candidates
  • IIP contracts by 35% in May. Manufacturing goes down by 39.3%
  • Row erupts over CBSE's decision to reduce the syllabus by 30% this academic year due to the disruption caused by the pandemic. Experts say several lessons that the ruling dispensation does not like are being removed
  • Gangster Vikas Dubey's nephew killed in an encounter by UP police who also pick up his key aide Raju Khullar and his son Adarsh
  • MHA sets up an inter-ministerial committee to probe the alleged financial misdeeds of three trusts linked to the Gandhi family
  • Actor Jagdeep, most famous for his Soorma Bhopali act in Sholay, passes away
  • Pakistan says Kulbhushan Jadhav has declined to file a review petition and will stick to his mercy plea. India calls it a farce
  • India to keep a strict vigil to confirm that the Chinese are abiding by the deal on the pullback at the LAC
Amitabh Bachchan and his son Abhishek admitted to hospital for coronavirus
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. Writes for a number of publications.

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.