Time after time: On RBI repo rate cut - Coggle Diagram
Time after time: On RBI repo rate cut
RBI once again stepped up at the right time with
measures to reduce the cost of capital and ease the financial burden on businesses
due to the
latest repo rate cut of 40 basis points
,it shaved off 1.15 percentage points from rate chart in the 58 days since the lockdown , bringing
repo rate down to 4% and the reverse repo rate to 3.35%.
The central bank may have played out its rate cut card for now as prudence would dictate that it
reserves some leverage for the future if economic conditions deteriorate even further.
STEP TAKEN & ITS IMPACT
The latest cut may be no more than a
economic activity is at its nadir
and there are
not many investment proposals
benefit from the lower interest rate
may be the
of the rate cut at this point in time.
Extension of the repayment moratorium
on loans is a welcome measure.
large proportion of commercial borrowers
themselves of the moratorium
but retail borrowers
not taken to it in a big way.
There may be more opting for it
given that the extended lockdown has left many a business in a shambles and salaries have either not been paid or are being disbursed with delays.
RBI has also shown empathy by
allowing accumulated interest on working capital loans to be converted into a term loan repayable by the end of this fiscal.
Borrowers would otherwise have been faced with the daunting prospect of paying up their interest dues in one shot at the end of the moratorium period.
extended period given may however still not be enough
as it will offer borrowers only about seven months from the end of the moratorium period during which they will have to crank up their businesses and service their loans.
The RBI could have put off accumulated interest repayment
by one year;
it might well find itself in a situation where it is
forced to offer another extension
in the next few months.
increase in group exposure limit for banks to 30% from 25%
who may find themselves handicapped in raising funds from the markets now.
not relax norms for loan restructuring by lenders.
The central bank has
played its cards well here because there is no way of knowing the true extent of distress now,
and hence it will be difficult to propose the right restructuring norms.
Chances are that this
may well form part of the RBI’s next announcement.
ITS POSITIVE SIDE
WHAT IS THE NEWS?
OTHER POSITIVE MEASURE