In order to further boost liquidity in the economy which has been reeling under the impact of COVID-19 induced countrywide lockdown, the Reserve Bank of India reduced repo rate by 40 basis points to 4 per cent today on May 22, Friday. The reverse repo rate now stands at 3.35 per cent. RBI also announced extension of loan moratorium by three more months to Aug. 31.
Measures like the reduction in repo rate by 40 basis points, the extension of term loan moratorium till August 31 is an honest step to support several sectors hit by contraction of economic activity stated Dr. Niranajan Hiranandani.
“Reserve Bank of India’s (RBI) third presser since the lockdown is a continued effort to increase private consumption and provide liquidity access to all sectors hit by the COVID-19 pandemic. These measures will help revive demand crippled by the lockdown,” He said.
According to Dr. Hiranandani, there has been a total collapse in demand in both urban and rural India since March 2020. The continued proactive measures taken by the RBI will help address these issues and revive the economy in the second half of the year, he said.
He stated that reducing the repo rate by 40 basis points to 4 percent will help the banks provide additional liquidity access to all the sectors.
“Industry welcomes the extension of term loan moratorium till August 31st. The lending institutions are being permitted to restore the margins for working capital to the origin level by March 31, 2021. This is a step in the right direction,” he said.
He also stated that the industry body welcomes the announcement by the RBI governor Shaktikanta Das to convert the accumulated interest for the moratorium period into a term loan.
“It will also provide some relief as the borrower will not have to immediately repay the accumulated interest on the loan after the moratorium ends,” Dr. Hiranandani said.
“Industry though awaits one-time debt restructuring as a holistic measure to give a breather to the industries across the board and help in its quick revival” he concluded .