SBI hails extension of the moratorium on loan repayment by 3 months, repo rate cut to facilitate economic growth

Reserve Bank of India has reduced repo rates as a boost to solve liquidity problems faced by trade and commerce. As several economic activities remained suspended due to nationwide lockdown to contain COVID-19 and are resuming operation after March 25, RBI Governor Shaktikanta Das informed media that the six-member Monetary Policy Committee voted 5:1 in favor of 40 bps cut in interest rate. The measures announced can be divided into four categories — to improve the functioning of markets, to support exports and imports, to ease financial stress by giving relief on debt servicing and better access to working capital and to ease financial constraints faced by State Governments. He saw a ray of hope for the revival of the stressed economy recalling agriculture and allied activities have ’’ provided a beacon of hope on the back of an increase of 3.7 percent in food grains production to a new record. India’s foreign exchange reserves have increased by 9.2 million US dollars from 2020-21 from April 1st onwards. So far, up to May 15th, foreign exchange reserves stand at 487 billion US dollars, he added. Sharing his optimism, State Bank of India has welcomed  RB’s latest measures to pep up the economy. Extension of a moratorium on term loans for another three months till August 31 will help the quick revival of the economy, says SBI Chairman Rajnish Kumar. The central banker has increased bank exposure to corporates to 30 percent of the group’s net worth from the current limit of 25 percent. “The entire effort of the government and the RBI is to revive the growth in the economy and at the same time recognizing the difficulties that industries are facing. All the measures around a reduction in repo rate, moratorium, and increase in the limit on group exposures will be helpful in the revival of the economy,” Kumar told reporters through a video call on Friday, May 22. The measures are a calibrated response to the situation which is emerging on account of the disruptions caused due to COVID-19. As of now, 20 percent of the SBI borrowers have opted for the three-month moratorium he said. The extension of the moratorium on repayment of loans will be helpful to the industry. Also, with the extension of the moratorium, there is no urgent need for a dispensation from the Barfight now, the moratorium will take care of the situation around the cash flow disruptions. I would not be obsessed with one-time restructuring at this particular point of time when we have time till August 31,” he said. Kumar opines that banks can still go for  restructuring of stressed accounts, if required, as per the June 7 circular of RBI. When asked about extending the moratorium to NBFCs and housing finance companies, Kumar said that it would be given on a case to case basis. We would decide on a case to case basis. We will have to look at their (NBFCs/HFCs) cash flows and take a decision, he said. SBI will take a decision on reduction in deposit and lending rates to post the ALCO meeting, Kumar said. (image courtesy to BusinessLine)