RBI cuts repo rate by 75 basis points



The RBI’s MPC has voted in favour of an interest rate cut to the tune of 75 basis points, which brings the repo rate down to 4.4 per cent from 5.15 per cent to help arrest the economic slowdown in the wake of the coronavirus (Covid-19) outbreak. The reverse repo rate has also been reduced by 90 basis points to 4 per cent in a bid to maintain financial stability and revive growth.

RBI has played its part and it is now up to commercial banks to pass on the benefits to the end-users as well as corporates. The transmission track record of banks is not great and thus, it would be interesting to see how the apex bank nudges the bank to follow suit.

Meanwhile, the liquidity adjustment facility (LAF) has been reduced by 90 bps to 4 per cent while the cash reserve ratio (CRR) has been slashed by 100 bps to 3 per cent. In an order to mitigate the burden of debt servicing brought about by disruptions on account of Covid-19 pandemic, the central bank announced measures that included a moratorium on term loans; deferring interest payments on working capital; easing of working capital financing; deferment of implementation of the net stable funding ratio; and the last tranche of the capital conservation buffer. Adding on- all commercial banks and financial institutions are being permitted to allow a moratorium of three months on payment of installments in respect of all term loans outstanding as on March 1, 2020.

Mr. Pradeep Aggarwal, Chairman – ASSOCHAM National Council on Real Estate, Housing, and Urban Development, Founder and Chairman – Signature Global India Pvt. Ltd. said, “The banks should immediately take steps, especially for the real estate sector, as it lockdown has led to no construction or client/allottees payment and things will start normalizing after 3 to 6 months. The halt in construction activity after the three-month delay because of the NGT issue will further push the delivery dates. In light of this entire scenario, the real estate sector does need support and RBI’s recent announcement gives a ray hope and we wish banks will take into consideration of the health of the sector that contributes in a big way to the GDP

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