The Reserve Bank of India embarked on a crisis-defusing mission as the coronavirus pandemic gripped the entire country, forcing it indoors and putting the economy on a ventilator.
The financial regulatory authority of India hasn’t faced such an acute crisis in its history and took some desperate measures aimed at minimizing the damage from Covid-19.
The RBI Governor Shaktikanta Das announced a moratorium of three months on all outstanding loans. All commercial, rural, regional banks, NBFCs and small financial institutions are directed to abide by that order.
What it meant?
It means that banks can allow their customers to stall their monthly instalment payments for a 3-month period, starting from March. This includes principle or interest payments, bullet repayments, equated monthly instalments (EMIs), and credit card dues.
However, interest will continue to accrue on the outstanding portion of the loan during the relaxation period.
This bold move by RBI came close on the heels of Modi government’s declaration of 1.7 lakh crore relief package aimed at providing a safety net for those affected by the coronavirus lockdown.
According to the RBI directive, the moratorium will not have any negative impact on the borrower’s credit rating or affect the risk classification of the loan. On the other hand, this monthly instalment holiday won’t make any difference to the existing terms and conditions of the loan.
However, one question clouded the minds of citizens after the directive was announced. Whether the customers will have to pay the additional interest on the instalments in one go or will it get adjusted as additional EMIs is something that need to be clarified by banks.
The courageous step by the RBI was taken after the central ministry wrote to the central bank that such a moratorium be announced to help citizens tide over the economic fallout as a result of the pandemic. Various stakeholders across industries had also pitched in their demands to the government to defer the EMI payments.
The RBI circular also clarified later that lending institutions should structure Board-approved policies to deliver these reliefs smoothly to all borrowers.
To check the falling economy, the RBI Governor earlier announced a sizeable reduction in repo rate by 75 basis points to 4.4 %, additional liquidity of INR 3.74 lakh crore to reduce the CRR, Long Term Repo Operations and improvement of Marginal Standing Facility.
A sigh of relief for Real Estate
The real estate sector recently came out of an economic crisis and battled structural changes like RERA to stay afloat. Things have been picking up in 2020 for the property sector until the Covid-19 pandemic hit the bruised industry hard.
Property sales plummeted, new project launches got shelved and liquidity flow dried up. The National Real Estate Development Council (NAREDCO-UP) had demanded deferment of home loan instalments for 12 months and a moratorium on project loans for 2 years.
The real estate sector contributes 10% to the national GDP and is the second-largest employer in the country. However, the coronavirus pandemic has put the functioning of the sector at stake.
CREDAI noted that the sector was already facing an acute shortage of construction materials due to import restrictions and shutting of inter-state borders leading to supply issues and escalation of raw material prices.
To alleviate the pain of the real estate sector, the RBI announced a raft of measures including a three-month moratorium on payments of instalments of home loans. NBFCs were asked to allow borrowers to defer EMI payments.
This move was given a thumbs up by the real estate association who took this as a soothing balm for various real estate developers. It also acted as a breather for homebuyers as well on servicing their loans.