RBI Extends Moratorium Further and Seeks Banks to Help Companies

The RBI has trimmed down interest rates, increased moratorium on loan repayments, and permitted banks to lend more money to the corporates
  • BY Jaspreet Kaur

    Feature Writer, BusinessEx

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  • May 22,2020
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  • 14 Mins Read

In the midst of contagion, corporations and small businesses have resumed operations to anchor the falling economy. Nonetheless, liquidity crunch is still persistent in the market and thus, begets borrowers to defer EMI payments. Understanding this position, the Reserve Bank of India (RBI) has lately taken a series of moves to help the economy to tide over this storm.  

The RBI has trimmed down interest rates, increased moratorium on loan repayments, and permitted banks to lend more money to the corporates in a bid to keep the economy buoyant. It is believed that the economy is contracting for the first time in over four decades, Press Trust of India (PTI) reported citing RBI's official statement.   

"The benchmark repurchase (repo) rate was cut by 40 basis points to 4 per cent," Governor Shaktikanta Das announced that the decisions taken by the central bank's Monetary Policy Committee (MPC).

Thereafter, the reverse repo rate was slashed to 3.35 per cent from 3.75 per cent.

"The MPC had voted to maintain its accommodative stance, implying more rate cuts in the future if need arises," Das added.

The central bank has supplemented the interest rate cut by increasing by three months. The banks are permitted to give a three-month moratorium on payment of monthly installments on all outstanding loans, rendering relief to home and automobile buyers, as well as, realty sector wherein construction activities are stalled. Moreover, the moratorium on interest on working capital is also increased by three months. 

"Interest accumulated for the six-month moratorium period can be converted into a term loan," Das said.

According to PTI's report, bank exposure to corporates has been increased to 30 per cent of the group's net worth from the current limit of 25 per cent, a move that will permit lenders to give larger loans to companies.

In its first official forecast for economic growth, the central bank said that the gross domestic product (GDP) is likely to contract in FY21 (April 2020 to March 2021).

"The inflation outlook is highly uncertain due to the outbreak of the COVID-19 pandemic and expressed concern over elevated prices of pulses," Das said. 

Deals in the Indian Market 

Apart from the central bank, other government bodies are taking steps to counter bad effects of the Coronavirus. Of late, All India Council of Technical Education - NEAT pronounced a collaboration with the Chennai-based edtech startup, Skill Lync. The move has been taken so that there would not be a hiatus in student education, as per PTI's report. 

Edtech startup, Skill-Lync is an engineering technical education platform that renders leading courses related to Mechanical, Electrical and Civil Engineering jobs. Students can access these courses throughout the globe. 

Under this deal, Skill-Lync has established INR 50,000 Mechanical Engineers Essentials program for students through AICTE. The company claims to have more than 15k subscribers to their free online coursework in the last week.

Given the extended at-home learning requirements that the industry is catering to, this partnership is aimed at accelerating the online learning process for mechanical, electrical and civil engineering students. Until now most computer science students had access to coding platforms that taught them industry relevant skills.This also accelerates the adoption of online learning for non-software engineering domains, according to the company's official statement. 

The Indian government is also taking important steps to compensate loss students are facing by closure of academic institutions and recruitment cells. Of late, the Finance Minister, Nirmala Sitharaman pronounced the release of 'Pradhan Mantri e-VIDYA' initiative for digital education that is certainly bolstering edtech startups throughout the country. 

The Department for Promotion of Industry and Internal Trade, (DPIIT) is planning to initiate Startup India seed fund and also, release a credit guarantee scheme to help budding entrepreneurs and startups, reported The Economic Times.

Under the National Seed Fund, the government body seeks to assist ideation and development of early stage startups while the credit guarantee scheme will help startups to raise loans.

"Work on the Cabinet note is in advanced stage," an official said in an interview with the cited media report. 

The two schemes are part of a larger roadmap to improve India's standing on the startup front and the overall vision for the sector will detail the priority areas that need support, the official told.

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