Mumbai: The Reserve Bank of India on Friday in a suprise call has slashed key interest rates, called another moratorium for three months, and credit lines.
Governor Shaktikanta Das announced that the Monetary Policy Committee had decided to slash key lending rates by 40 basis points or by 0.40 percent. The key repo rate stands at 4 percent while the reverse repo rate stands at 3.35 percent. Das said the central bank would maintain accommodative stance till growth revives.
Moratorium on all loans and payments stands extended via a moratorium. Moratorium on interest payments on all term loans has been extended for another three months, and repayment of accumulated interest on moratorium through FY21 has been allowed.
For the corporate sector, the MPC (monetary policy committee) allowed a three-month extension of moratorium on payment of instalments with respect to all term loans outstanding as on March 1, 2020. This moratorium, as announced by RBI on March 27, was ending on May 31. It has been extended to August 31 now. The apex bank also announced further deferment of interest payment on working capital loans by another three months till August end. This would cover all outstanding as on March 1, 2020.
Das said that while interest payment on working capital loans is being deferred the accumulated interest for the period can now be paid in instalments till the end of FY21.
For the corporate sector, a credit line of Rs 15,000 crores has been extended to Exim (Export-Import) bank. Noting that the EXIM Bank was facing challenges to raise funds Governor Das observed, "It has been decided to extend a line of credit of Rs 15,000 crore to the EXIM Bank for a period of 90 days from the date of availment with rollover up to a maximum period of one year so as to enable it to avail a US dollar swap facility to meet its foreign exchange requirements."
Several exporters and importers depend upon financial assistance from the Export-Import Bank of India. The Governor's statement revealed that India's merchandise exports and imports "suffered the worst slump in last 30 years as COVID-19 paralysed world production and demand. India's merchandise exports plunged by 60.3 per cent in April 2020 while imports contracted by 58.6 per cent."
As an Export-import centric policy, the RBI also announced, " In order to alleviate genuine difficulties being faced by exporters in their production and realisation cycles, it has been 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."
Here are the major observations made by the MPC on the state of the economy:
1. By all counts, the macroeconomic and financial conditions are austere. The global economy is inexorably headed into recession.
2. "High frequency indicators points to collapse in demand in March... We have faith on the Indian economy."
3. Domestic economic activity has been impacted severely by the 2 months lockdown. The top 6 industrialised states that account for about 60 per cent of industrial output are largely in red or orange zones. Some pick-up in growth impulses is expected in second half of the year, according to Das.
4. In the production sectors, industrial production shrank by close to 17 per cent in March 2020, with manufacturing activity down by 21 per cent. The output of core industries, which constitutes about 40 per cent of overall industrial production, contracted by 6.5 per cent. Although investment demand has virtually come to a halt agriculture and allied activities have been referred to as a beacon of hope by the Governor.
5. Inflation outlook has become complicated due to incomplete data but headline inflation will remain firm in the first half of H1 of FY21. The combined impact of demand compression and supply disruption will depress economic activity in the first half of the year.
The detailed guidelines are expected to be released soon.