Moratorium on EMI repayment announced by RBI, Know more about MCLR and Repo rate linked Loan, Meaning of (RR) Repo Rate, (RRR) Reverse Repo Rate and (CRR) Cash Reserve Ratio
Reserve bank of India (RBI) Governor Shaktikanta Das announced on March 27 to cut repo rates by 75 basis points(0.75%) and allowed lending institutions to provide 3 months moratorium on EMI repayment on all term loans.
This means that no penal action will be taken against borrowers of home loans, personal loans, car loans, among others for not repayment EMIs for 3 months starting April.
RBI governor Shaktikanta Das said all commercial banks, regional rural banks, small finance banks, cooperative banks, and non-banking financial companies are permitted to allow a three month on EMI payments for term loans outstanding in March 1,2020.
The moratorium on term loans, will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. Hence, there will be no adverse impact on the credit history of the beneficiaries, the RBI Governor said.
However, it must be noted that the moratorium does not apply to credit card dues. also, while the RBI has permitted banks to allow the moratorium, it depends on whether a particular bank chooses to extend these benefits to its customers.
Basis of interest rate banks provides loan to the customers either on basis of repo rate or MCLR (Marginal Cast Lending Rate).
Repo Rate Linked Loan:
This type of loan rate control by RBI and revised in every 3 months, As per current announcement by RBI Governor Shaktikanta Das customers loan on repo rate would be benefited soon.
MCLR (Marginal Cast Lending Rate) Linked Loan:
This type of loan rate control internally by banks, MCLR rate revised in every 6 to 12 months, As per current announcement by RBI Governor Shaktikanta Das customers loan on MCLR rate would be benefited not very soon.
Explanation about (RR) Repo Rate, (RRR) Reverse Repo Rate and (CRR) Cash Reserve Ratio
Repo Rate – Repo rate is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds. Monetary authorities use this to control money supply in the economy, thereby inflation.
Reserve bank of India (RBI) finally bit the bullet on Friday and responded to the coronavirus induced crisis with a whopping 75 basis points cut in the Repo rate, bringing it down to 4.4%. The Repo rate has thus fallen to the lowest ever. Before this, it had hit the lowest point of 4.74% in April 2009 in the wake of the global financial crisis.
1% = 100 basis point
RBI cut repo rate 75 basis points (0.75%)
Old Repo rate = 5.15%
Revised Repo Rate = 5.15% – 0.75% ⇒ 4.40%
Reverse Repo Rate – The reverse repo rate is the rate at which RBI borrows funds from commercial banks. it is the rate at which commercial banks in India park their excess money with RBI usually for the short term.
The reverse repo rate also lowered by 90 basis points. The reverse repo rate has been cut by 90 basis points to 4%. Das said this has been done to make it unattractive for banks to passively deposit funds with the RBI and instead lend it to the productive sectors.
Revised Reverse Repo Rate ⇒ 4%
CRR (Cash Reserve Ratio) – CRR or cash reserve ratio is the percentage of total deposits that banks are required to keep in reserves either in the vaults or with RBI so that the same can be given to the bank’s customers if the need arises. Banks do not get any interest on this money.
it is one of the major weapons in RBI’s arsenal that allows it to maintain the desired level of inflation, control money supply and liquidity in the economy.
The lower the CRR, the higher liquidity with banks, which in turn goes into investment and lending and vice-versa.
The central bank also cut the CRR by 100 basis points to 3% with effect from March 28, unlocking Rs 1.37 lakh crore primary liquidity in the banking system.
Revised Cash Reserve Ratio ⇒ 3%
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