Banks, financial stocks under pressure as RBI extends moratorium on loan repayment

RBI Press Meet Today LIVE: Repo Rate Reduced by 40 Basis Points, GDP Growth to Remain in Negative Territory, Moratorium Extended For 3 Months Again

Consequently, the reverse repo rate now stands reduced to 3.35%, while the MSF rate is down to 4.25%. In an off-cycle meeting of the Monetary Policy Committee (MPC), the decision was taken unanimously to cut repo to support growth.

On Marc 27, Das announced a Rs 3.74 lakh crore (1.8% of GDP) package, which included Targeted Long-Term Repo Operations (TLTRO) worth Rs 1,00,000 crore; Cash Reserve Ratio (CRR) was cut by 100 basis points to 3 per cent; and accommodation under Marginal Standing Facility was hiked from 2% of Statutory Liquidity Ration to 3%: Rs 1,37,000 crore.

The central bank has also chose to extend the loan moratorium for another three months till August.

The lockdown is scheduled to last through May, but life is slowly picking up with shops reopening and manufacturing and farming resuming. Consumption of electricity and oil - indicators of day-to-day demand - have plunged, he added.

In April, the RBI had unexpectedly cut its key deposit rate to discourage banks from depositing idle funds with it and propel lending and boost the sluggish economy amid the coronavirus crisis. "We must have faith in India's resilience & come out of all odds", RBI Governor also said.

In its address, Das said that "the global economy is inexorably headed into a recession".

Providing a great relief to borrowers, Das said the moratorium for re-payment of loans, which was earlier imposed for three months, has been extended for another three months till August 31.

The central bank refrained from giving a projection for GDP growth for the current financial year, as it stopped at saying GDP growth expected in the "negative territory" with some pick-up in growth impulses from the second half of 2020-21 onwards.

Das said the inflation outlook is highly uncertain due to the outbreak of the COVID-19 pandemic and expressed concern over elevated prices of pulses. This move is a major booster shot aiming to cushion the impact of COVID-19 on the Indian economy. "The impact on the banking sector will be negative". Beyond doubt, repo rate cuts do uplift the sentiments of home buyers even further.

Niranjan Hiranandani, President, Assocham and NAREDCO, said: "There has been a total collapse in demand in both urban and rural India since March 2020. Home loan interest rates have already gone down substantially over the previous year, and are presently at an all-time low averaging between 7.15 per cent to 7.8 per cent", explained Puri.

At 1:40 pm financial stocks like HDFC Bank, HDFC, ICICI Bank were all in the red with the latter two taking hits of more than 5 percent.

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