The Reserve Bank of India (RBI) on Thursday kept interest rates unchanged to help tame inflation that in recent times had surged past 6 per cent mark, and said that the economy is in an extremely weak condition following the pandemic.
The central bank also allowed lenders to restructure corporate and MSME loans as well as raised the limit of loans that can be availed against gold ornaments and jewellery.
After cutting interest rates by 115 basis points since February, the Monetary Policy Committee (MPC) after three days of deliberations voted unanimously to leave the policy repo rate unchanged at 4 per cent.
The MPC also decided to “continue with the accommodative stance of monetary policy as long as necessary to revive growth, mitigate the impact of COVID-19 while ensuring that inflation remains within the target” zone, RBI Governor Shaktikanta Das said.
“Given the uncertainty surrounding the inflation outlook and extremely weak state of the economy in the midst of an unprecedented shock from the ongoing pandemic, the MPC decided to keep the policy rate on hold,” he added.
Das said the central bank would remain “watchful for a durable reduction in inflation to use the available space to support the revival of the economy.” While, economic activity had started to recover from the lows of April-May, a surge in fresh infections have forced re-clamping of lockdowns in several cities and states to “level-off” various high-frequency indicators.
The six-member MPC saw upside risks to food prices and elevated headline inflation during July-September, which would ease in the second half of the 2020-21 fiscal.
It forecasts a contraction in real GDP growth for the April 2020 to March 2021 fiscal.
“Real GDP growth in the first half of the year is estimated to remain in the contraction zone. For the year 2020-21 as a whole, real GDP growth is also estimated to be negative,” Das said.
Keeping interest rates unchanged will help achieve the medium-term target of consumer price index (CPI) inflation of 4 per cent with a band of +/-2 per cent while supporting growth, RBI said.
Das announced a Rs 10,000 crore additional special liquidity facility for the housing sector and smaller non-bank finance companies (NBFCs).
To deal with economic disruptions caused by COVID-19, RBI allowed lenders to implement a resolution plan for corporate loans without change of ownership.
Also, MSME borrowers have been allowed restructuring of debt.
Das said limit of advance against gold ornaments and jewellery has been raised. Currently, up to 75 per cent of the value of gold ornaments and jewellery can be availed as loan for non-agriculture purposes.
“With a view to mitigating the impact of COVID-19 on households, it has been decided to increase the permissible loan-to-value ratio (LTV) for such loans to 90 per cent. This relaxation shall be available till March 31, 2021,
RBI extends loan restructuring facility to corporates
Mumbai, Aug 6 (PTI) The Reserve Bank of India (RBI) on Thursday announced a loan restructuring window for corporates following bankers and industry demand.
The restructuring will be allowed as per the prudential framework issued on June 7, 2019, RBI Governor Shaktikanta Das said.
Last week, Finance Minister Nirmala Sitharaman had said that the government is working with the RBI on the need for restructuring of loans to help the industry tide over the impact of COVID-19.
“The focus is on restructuring. Finance ministry is actively engaged with RBI on this. In principle, the idea that there may be a restructuring required, is well taken,” Sitharaman had said.
In February, the RBI decided to extend the benefit of one-time restructuring without an asset classification downgrade to standard accounts of GST-registered micro, small and medium enterprises (MSMEs) that were in default as on January 1, 2020, in line with the Budget announcement.
Stressed MSME borrowers would be eligible for restructuring of debt, if their accounts were classified standard, Das added.
The governor also raised the Loan-to-Value ratio against gold to 90 per cent from current 75 per cent, to mitigate COVID-19 impact on households.
Priority sector lending status has been extended to start-ups, a move that will encourage banks to extend loans to such units.
However, the Governor did not give any indication on the loan moratorium which ends on August 31.
To help borrowers deal with liquidity crunch during the pandemic, the Reserve Bank had announced a three-month loan moratorium in March, which was later extended by another three months till August 31. Borrowers opting for loan moratorium can defer payment of the interest and principal component of the loan during this period.
However, bankers expressed reservations over further extending the loan moratorium because it is being misused by even those who have the ability to pay.