RBI’s Lockdown Relief for Business Loans

The new RBI rules have brought relief to borrowers and financial markets to handle the disruption caused by the lockdown. In India, 1.3 billion citizens are under a three-week-long lockdown due to the pandemic. The pandemic has also stalled numerous businesses. As per RBI, all Indian Banks have to allow a three-months moratorium by deferring payment of EMI/ business loan Instalments, business loan interest rates and interest on Working Capital starting from 1st March 2020. This is good news for the business loan borrowers as they won’t be charged for payment default due to the current lockdown. As a payment default will have a negative effect on their credit score and credit history ultimately inviting problems for future loan applications.

With banks clarifying their positions on EMI moratorium, it will help clear doubts of customers who were confused after getting EMI payment reminders from their respective lenders. The Agriculture Ministry has also confirmed that farmers will continue to get short-term loans of up to ₹3 lakh at a subsidized interest rate of 7 percent, and prompt repairs will get it at 4% as the government extended the subsidy to banks till May 31. The decisions were implemented through banks, keeping in mind the farmers who would not be able to go to banks to make payment of their loan on account of restrictions imposed due to the pandemic lockdown.

In addition, RBI has decided to extend the realization period of export proceeds. RBI also stated that the time period for realization and repatriation of export proceeds for exports made up to or on July 31, 2020, has been extended to 15 months from the date of export. Presently the value of the export goods made by the exporters is required to be realized fully and sent back to the country. The measure will help exporters realize their receipts, especially when exporting to the pandemic affected countries. It might also provide greater flexibility to negotiate future export contracts with the buyers abroad.

Inflation vs growth

The annual growth estimate of 5 percent for the year as a whole is now at risk due to the pandemic’s impact on the economy. The growth and inflation will be heavily contingent on the intensity, spread, and duration of the pandemics effect. Hence, the MPC (Monetary Policy Committee) refrained from giving out specific growth and inflation numbers. Moreover, Food inflation is expected to go down in the coming months, apart from the continuing resilience of agriculture and allied activities, most other sectors of the economy will be adversely impacted by the pandemic. The outcome solely depends on the overall intensity, spread, and duration of the pandemic.

Business Loan EMI relief

The RBI told all banks, financial institutions, and non-banking finance companies, including housing finance companies as well as microfinance firms to allow a moratorium of three months on loan EMI payments in respect of all term loans outstanding as on March 1, 2020. This will be applicable for all term loans, including agricultural term loans, retail loans. The gap in payment during this period will not have an impact on the credit history of the customers as banks will not treat it as default while reporting to the credit information companies (CIC), the RBI governor assured. Similarly, in the case of working capital loans of companies, companies need not pay interest in respect of all such facilities outstanding as on March 1.

Liquidity relief

The Reserve Bank of India (RBI) raised Rs 3.74 trillion of additional liquidity in the banking system through various policy measures. Taken with the recent liquidity measures, the liquidity infusion is an unprecedented Rs 6.5 trillion, or about 3.2 percent of gross domestic product (GDP) of the economy. To start with, the central bank said it will conduct auctions of targeted terms of up to three years’ tenor for a total amount of up to Rs 1 trillion.

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