Here is what leading brokerages expect from the central bank.
From the operational side, the lenders shall frame board-approved policies for providing the above-mentioned reliefs to all eligible borrowers, inter alia, including the objective criteria for considering reliefs.
The apex bank also chose to cut interest rate, which is the steepest in more than 11 years.
From slowdown to lockdown, there is no respite for the beleaguered Indian economy.
In other decisions, the RBI cut repo to 4.4 per cent, which is the lowest in the last 15 years. The monetary policy was supposed to be announced on April 3.
The RBI measures come a day after the government unveiled a Rs 1.7 lakh crore package of free foodgrains and cash doles to the poor. The reverse repo rate was cut by 90 bps to 4 per cent, creating an asymmetrical corridor.
"Priority is to undertake strong and purposeful action to protect the domestic economy, Need for all stakeholders to fight against the pandemic and banks should do all they can to keep credit flowing". In this challenging scenario, the Union government and the Reserve Bank of India (RBI) are pulling out all the stops to arrest the slide, at least in the short run. Although both these moves are welcome and would benefit especially NBFCs and HFCs who are actively involved in raising money from the bond and CP market, the point which will have to be monitored is that amidst this lockdown, whether there will be on-lending of these funds by financial institutions to various industries.
Faced with unquantifiable risks to India's economy and financial system from the Covid-19 crisis, the Reserve Bank of India has deployed an impressive array of weapons from its arsenal to contain the fallouts.
Can borrowers breathe a sigh of relief?
Loans What loans does the moratorium apply to?
The RBI said the repayment scheduled for loans where the EMIs stand deferred for three months shall be shifted across the board by three months after the moratorium period."Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period".
However, the devil lies in the details. The moratorium on term loans, deferment of interest payment will not result in asset classification downgrade and banks may reassess the working capital cycle.
The first point of impact of a repo rate cut should ideally be on the deposit rates.
Rajan Bandelkar, National Real Estate Developer Council's (NAREDCO) Maharashtra president said, "The repo, reverse repo rate and CRR cuts would extend more lending powers to the banks".
The biggest rate cut since January 2009 takes interest rate to the lowest in more than one-and-a-half decade (lowest since October 2004).
Thus, the challenge will be to reduce the deposit rates in order to maintain the interest rate spread. "RBI will conduct auctions of long term repo operation (LTRO) of three-year tenure up to Rs1 lakh crore at a floating rate linked to the policy rate", the RBI Governor stated.
In the past, experts have expressed concern about the NDF market - till now inaccessible to Indian banks - as among the measures which drive the rupee movement. It helps in putting a control on the amount of money supply in the economy. Rucha Ranadive, Economist CARE Ratings also contributed to this article.