What do RBI announcements mean for common man, Indian economy amid coronavirus lockdown

The Reserve Bank of India (RBI) on Friday massively reduced the key lending rates in response to the Covid-19 outbreak. The Monetary Policy Committee of the central bank in an unscheduled meet reduced the repo rate by 75 basis points to 4.40 per cent from 5.15 per cent. Consequently, the reverse repo rate was also reduced by 90 basis points to 4 per cent. Besides, the marginal standing facility (MSF) rate and the Bank Rate stand reduced to 4.65 per cent from 5.40 per cent. 

"The purpose of this measure relating to reverse repo, is to make it relatively unattractive for banks to passively deposit funds with the Reserve Bank, and instead to use these funds for lending to the productive sectors of the economy," RBI Governor Shaktikanta Das said. 

The announcements from the RBI are like a bazooka to deal with the economic pain and uncertainty prevailing in the wake of the COVID crisis, believes Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas. He said that the RBI has used several levers to increase liquidity in the system. 

“This empowers banks to commence or continue the emergency COVID credit lines opened up by several of  banks. Crucially, in recognition of the inevitable stress in the next few months the RBI has permitted all lenders regulated by it to provide a moratorium on all instalments for term loans and interest payments on working capital loans- specifying that such a payment moratorium will not result in a adverse asset classification. This provides a much needed respite for borrowers and lenders in these trying circumstances and should soften the recovery period,” Shroff said.

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The MPC voted to maintain accommodative stance, thus opening up possibilities for more future rate cuts. In another major step, the Apex bank instituted a moratorium on interest payments for three months.  On the outlook side, the RBI said that recovery in 2020 from 2019`s decade low in global growth have been dashed. 

The measures announced by the FM yesterday and by the RBI today, are indeed bold and explicitly reflect Govt’s resolve to face the health & the economic crises head-on, with special focus  on the distress of the common man, said Thomas John Muthoot, Chairman and Managing Director, Muthoot Pappachan Group. 

“The moratorium for banks and NBFCs on term loan instalments and interest on working capital for up to 3 months will also provide some relief as many individuals, especially self-employed ones, are facing income loss due to the ongoing lockdown. Various measures to nudge banks to lend and to inject liquidity into the system, will help in passing the benefit to the potential borrowers - the people with small businesses, self-employed and so on, in dire situation right now, with everything shut-down,” he said.

The decision to bring down repo rate by 75 bps will increase the market liquidity and ease the business functions to some extent, said Kapil Rana, Chairman and Founder, HostBooks Limited 

"Amid Covid-19, lockdown RBI brings down repo rate by 75 basis points from 5.15% to 4% this rate cut is driven by fear of recession and slowdown as Mody’s cut India growth forecast from 2.5% from 5.3% for 2020 calendar year.  It is indispensable in the current situation; this will increase the market liquidity and ease the business functions to some extent. In addition, a moratorium of three months of EMIs on all outstanding loans is a great immediate relief for business as well as individuals- this one is the remarkable decision by the RBI,” he said.