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Coronavirus relief package: How RBI’s emergency repo rate cut benefits borrowers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Borrowers have a reason to cheer as RBI recently announced a big-bang reduction in repo rate — the rate at which the central bank lends short-term funds to commercial banks. Assuming that banks pass on the benefit of the rate cut to customers, equated monthly instalments (EMIs) are likely to go down for customers who take loans from banks.

On March 27, RBI cut repo rate by 75 basis points (bps) or 0.75 percent to help the weakening economy in view of the coronavirus pandemic. The key lending rate now stands at 4.4 percent.

How does reduced repo rate help consumers? Let’s understand in detail

Repo rate has a direct bearing on customers who take loans from banks. As RBI has reduced the key lending rate, it means that banks can borrow money from RBI at a much lower interest rate.

According to investment platform BankBazaar, commercial banks usually pass benefits of reduced repo rate to customers by reducing interest rates on loans they offer. This means customer have to pay a lesser EMI, effectively bringing down overall cost of loans.

For existing borrowers, however, the impact may not be immediate. There is a reset-period for loans, after which rates get revised for borrowers. The actual effective loan interest rate also depends on the loan amount, tenure and other factors.

Major banks have already announced reduction in lending rates

State Bank of India, country’s largest lender, has passed the entire 75 bps repo rate cut benefit to borrowers availing loans linked to external benchmark linked lending rate (EBR), as well as repo linked lending rate (RLLR).

With this revision, SBI’s EBR will be reduced to 7.05 percent per annum from 7.80 percent per annum. SBI’s RLLR will be reduced to 6.65 percent per annum from 7.40 per annum. This will come into effect from April 1.

Following the rate cut, Bank of Baroda said that it has reduced its repo-linked lending rate (BRLLR) by 75 bps. Additionally, Bank of India (BoI) has reduced its marginal cost of funds lending rate (MCLR) by 25 bps across tenors from one year to one month and by 15 bps for overnight tenors. BoI stated that its external benchmark lending rate has been reduced by 75 bps a year.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Coronavirus lockdown: How to withdraw EPF money citing COVID-19 outbreak

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Employees’ Provident Fund Organization, or EPFO, the nodal agency that monitors employees’ provident fund (EPF) contributions, now allows the subscriber to make a partial withdrawal, or ‘advance’ withdrawal, from the PF corpus due to the coronavirus pandemic. According to a new EPF rule, subscribers can withdraw 75 percent of balance or three months’ wages, whichever is lower, as non-refundable advance from their account.

The new rule has been notified in view of the ongoing outbreak of the coronavirus pandemic and the subsequent lockdown to counter its spread. Additionally, the finance ministry recently said that the EPF share of employee’s contribution of 12 percent plus 12 percent of the employer’s contribution will be paid by the government for the next 3 months, in case of small firms.

In order to apply for EPF withdrawal online, the subscriber must have an active Universal Account Number (UAN) and the mobile number used for activating the UAN number should be in working condition. The UAN should be Know Your Customer (KYC)-verified by furnishing information such as Aadhaar, Permanent Account Number (PAN) and bank details.

The subscribers can put a claim for ‘advance’ withdrawal via EPFO’s unified portal — unifiedportal-mem.epfindia.gov.in. The claim is then forwarded to the employer for approval. Once approved, the amount is credited to the subscriber’s account.

Here are the steps to initiate a EPF claim online citing coronavirus pandemic as the reason:

Step 1: Login to the EPFO portal – unifiedportal-mem.epfindia.gov.in using UAN and password

Step 2: Go to ‘online services’ and select ‘claim’ section

Step 3: Verify the bank account number

Step 4: Upload a scanned copy of a cheque or the passbook

Step 5: You will be asked a reason for submitting the advance. Select ‘outbreak of pandemic’ as the reason

Step 6: Generate an Aadhaar-based OTP. Once the claim is processed, it will be forwarded to the employer for approval.

Previously, non refundable advances were permitted only for specified purposes such as purchase/construction of the house, repayment of a loan, non-receipt of the wage for two months, marriage of self/daughter/son/brother, for medical treatment of family members etc.

Financial experts, meanwhile, say that it is not a good idea to withdraw the PF amount until retirement. EPF works on compounding and the corpus, if allowed to build up, can reap huge benefits. However, subscribers may do so in order to meet their short-term needs or in an unforeseen situation like the present.

Catch all coronavirus updates live here

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rupee opens 29 paise lower at 75.18 against dollar

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Rupee opens 29 paise lower per dollar at 75.18 on Monday against previous close. On Friday, rupee had settled higher at 74.89 after the RBI announced various measures to stimulate growth amid coronavirus-induced lockdown in the country.

Asian shares, meanwhile, slid on Monday and oil prices took another tumble as fears mounted that the global shutdown for the coronavirus could last for months, doing untold harm to economies despite central banks’ best efforts.

“We continue to mark down 1H20 global GDP forecasts as our assessment of both the global pandemic’s reach and the damage related to necessary containment policies has increased,” said JPMorgan economist Bruce Kasman. They now predict global GDP could fall at a 10.5 percent annualised rate in the first half of the year.

(With inputs from Reuters)

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Crude oil futures slide as pandemic darkens demand outlook

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Crude oil benchmarks dropped on Monday, extending last week’s losses as the global coronavirus pandemic worsened and the Saudi Arabia-Russia price war showed no signs of abating.

U.S. West Texas Intermediate (WTI) crude futures hit a low of $19.92 in early trading and last traded down 5.2 percent, or $1.12, at $20.39 a barrel as of 2332 GMT, while Brent futures fell 5.6 percent, or $1.40, to $23.53 a barrel.

The oil markets are enduring a twin shock of demand destruction caused by the coronavirus pandemic and the Saudi-Russia price war that is flooding markets with extra supply.

With the demand now forecast to plunge 15 million or 20 million barrels per day, a 20 percent drop from last year, analysts say massive production cuts will be needed beyond just the Organization of the Petroleum Exporting Countries (OPEC).

“OPEC, Saudi Arabia and Russia could mend their differences, but there’s not that much OPEC could do….The demand shock from COVID-19 is just too big,” said National Australia Bank’s head of commodities research, Lachlan Shaw.

“The reality is global storages will fill up in a couple of months if nothing changes, and that will have all sorts of disruptive impacts on pricing.”

The coronavirus pandemic, which has killed about 32,000 people and sickened more than 500,000 worldwide, has brought the worldwide aviation industry to a standstill and put roughly 3 billion people on lockdown to limit the spread of the virus.

The staggering fallout of the virus has swiftly eroded gasoline demand.

In recent days prices for crude oil at key locales such as Midland, Texas, have traded at several dollars less than U.S. futures, an indication that companies there are anticipating a flood of supply. Some obscure grades of crude stranded at the end of pipelines have even fetched negative prices.

“From a physical point of view, it’s really bleak,” Shaw said. “You need a strong signal to tell suppliers this is a pretty diabolical situation.”

U.S. oil production is currently running at roughly 13 million barrels per day, a record, but is expected to drop by more than 1.4 million bpd by the end of the third quarter 2021.

This past week, the Baker Hughes rig count fell by 40, the most since 2015, as companies swiftly pull in spending. Most global majors have announced plans to cut back on capital expenditures and hundreds have already been laid off in anticipation of oil prices falling through the $20-per-barrel mark.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Should you go for portfolio diversification amid market volatility? Here’s what experts suggest

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Equity markets have been quite volatile in recent times, thanks to the dread coronavirus has created. Investors have lost 20-30 percent of the returns over the last 1-2 months, according to a Motilal Oswal report. With index valuations at historical lows – investors must be having a second thought if it is the right time to diversify investments? If yes, where should they put their hard-earned money?

Let’s see what experts suggest on diversifying investment portfolio:

Investors who are overweight on equities may have witnessed large portfolio losses recently. Such people, experts say, should not rush into reducing their equity exposures to diversify.

“Instead the best thing to do is to stop looking at day to day movements if invested in mutual funds. But if somebody has direct equity portfolio, it is a good time to switch from average companies to great ones,” suggests Raghvendra Nath, MD, Ladderup Wealth Management.

For someone who is underweight on equities, these are however not to be missed times.

“Keep shifting money from debt to equity during this period,” he adds.

Pratik Oswal, Head – Passive Fund Business, Motilal Oswal Asset Management Company explains that it’s always good to keep some liquidity in case the present scenario becomes worse.

“It is not a good idea to add too many schemes. But, if one feels the need to diversify, it is better to buy categories/funds that match the risk profile. Conservative investors should stick to large-cap funds and debts,” he says.

Diversifying slowly in next 1-2 years is, however, a good idea.

“Add debt, gold, international funds so that the portfolio is ready for the next crisis (as per the risk profile),” explains Oswal.

Gold may not have high returns over long-term horizons but is a great hedge when equity falls. It lowers the portfolio volatility and gives some bit of downside protection. There are many ways of investing in gold such as sovereign bonds and gold ETFs.

International fund is also a good option.

“Geographical diversification can fight the rupee depreciation and give diversification. With global stock markets also falling – it’s a great time to load them up,” he adds.

Jashan Arora, Director, Master Capital Services, meanwhile, suggests that having the right investment mix for the situation is critical in good times in the financial markets and during downturns.

“While investors can’t control the ups and downs in the economy, diversification can sometimes help in limiting or minimizing the impact on the portfolio. Investors can look for asset classes that have low or negative correlations so that if one moves down the other tends to counteract it,” he explains.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fact check: No, EMIs have not been waived off; only deferred

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) on Friday allowed all financial institutions to allow a 3-month moratorium for all term loans in view of coronavirus outbreak and the subsequent lockdown. It is important to understand that this is not a waiver on EMIs, but only a deferment.

As per the announcement, the repayment schedule and all subsequent due dates as also the tenor for all kinds of loans will be shifted across the board by 3 months. The borrowers will not have to pay the loan EMI installments during the moratorium period.

Availing this facility will also not lead to any downgrading on borrowers’ credit rating, RBI said. Also, no changes will be made in the existing terms and conditions of the loan.

The RBI policy statement explicitly mentions term loans, which include home loans, personal loans, education loans, auto and any loans which have a fixed tenure. They also include consumer durable loans, such as EMIs on mobiles, fridge, TV, etc.

Meanwhile, RBI also slashed repo and reverse repo rate by 75 bps and 90 bps respectively in order to rescue a slowing economy that has now got caught in coronavirus whirlwind.

For our complete RBI rate cut coverage, click here

Track our full coverage of the coronavirus pandemic here.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Experts welcome RBI’s stimulus measures amid coronavirus pandemic

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Industry experts hailed Reserve Bank of India’s steps to mitigate the negative impact of coronavirus on the economy. The steps will help in pushing lending rates down, encourage banks to infuse money into productive sectors, infuse liquidity and address the financial stress in the system, they said.

The RBI cut repo rate by 75 basis points to 4.4 per cent. Also, it reduced the cash reserve ratio maintained by the banks by 100 basis points to release Rs 1.37 lakh crore across the banking system. The central bank also allowed banks to put on hold EMI payments on all term loans.

Here’s what experts said about RBI’s new initiatives to boost economy:

According to Zarin Daruwala, CEO, India, Standard Chartered Bank, the bold steps initiated by the MPC will help financial markets tide over the current situation.

Aamar Deo Singh, Head Advisory, Angel Broking Ltd echoed a similar feeling.

“The measures taken by RBI are a very welcome step in line with the actions taken by major central banks across the world. It’s impact will be visible in weeks  and months to come,” he added.

Siddharth Mehta, Founder & CIO of Bay Capital also described the measures as an extremely positively one.

Gurpreet Sidana, Chief Operating Officer of Religare Broking said the announced cut of 75 bps is higher than the market expectation as the majority were anticipating 50 bps and that too during the MPC meet in April.

On giving 3-month moratorium on all the term loans, he added that the move will not only save the urban middle class, industrial borrowers at large but also help the banks (scheduled and cooperative) and NBFCs which are already dealing with the stress of rising NPAs.

“And that, in turn, would reflect into their stock prices too. In short, it’s a win-win situation for all,” he added.

On injecting 3.74 lakh crore into the system, Honeyy Katiyal, Founder, Investors Clinic said it will boost market sentiments across industries and bring in some stability to the Indian economy.

Gaurav Chopra, CEO, IndiaLends & President of DLAI (Digital Lending Association of India) described RBI’s initiative as a critical one. He welcomed RBI’s steps of providing moratorium of three months on repayment of installments for term loans outstanding as on March 1, 2020.

“However, we await to get some more clarity to see how this gets implemented and the exact benefit to borrowers across different loan classes,” he added.

Dr. Joseph Thomas, Head of Research – Emkay Wealth Management said the relief given on the repayments in term loans will remove lot of stress which a large number of borrowers may face in the coming days.

“This is a direct and targeted approach to the fluid situation in the face of an uncertain inflation and growth trajectory. This scaffolds the positive impact of the fiscal measures and strengthens our response to the adverse economic impact of the pandemic,” he added.

Hemant Kanoria, Chairman, Srei Infrastructure Finance Limited, said, “Allowing all banks and NBFCs to offer a 3-month moratorium on repayments of all term loans to their borrowers is a positive step. The fact that no borrower’s credit history will get affected because of this provides relief to all categories of borrowers. This will also provide the companies some breathing space to re-draw their strategies and re-invent themselves.”

Anuj Puri, Chairman – ANAROCK Property Consultants said the repo rate cut will effectively benefit all sectors including real estate.

“Given this time period, RBI will ensure that the benefit of the rate cut is directly passed on to actual consumers, which could eventually translate into more home loan takers. Additionally, this move of the RBI encourage banks to lend more and also enable industries to borrow,” he said.

Ashwin Chawwla- Founder & CEO, Escrowffrr described RBI’s moves as critical, well-thought and timely step that will provide much-needed relief and stability to the lives of individuals.

On banks being allowed to participate in NDF market, Amar Ambani, Senior President and Head of Research, YES Securities said that it will help tide over the currency volatility somewhat.

For our detailed RBI coverage, click here

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

All EMIs on term loans automatically suspended for 3 months, clarifies SBI chief Rajnish Kumar

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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All equated monthly installments (EMIs) on term loans will automatically be suspended for three months, clarified Rajnish Kumar, Chairman of State Bank of India (SBI).

This clarification came after the Reserve Bank of India (RBI) announced 3-month moratorium on all loans in order to give relief to depositors amid the ongoing coronavirus lockdown.

“Installments will get automatically deferred by 3 months for term loans and customers don’t have to apply to banks for it,” Kumar said. He added that banks can formulate own policies on new loans keeping borrowers’ repayment capacity into account.

As per the announcement, credit card dues won’t be part of the 3-month moratorium as they are not part of term loan. However, all retail loans including EMIs will be covered.

The central bank, meanwhile, announced steps to boost liquidity worth 3.2 percent of the gross domestic product. It slashed repo rate by 75 basis points in order to revive growth and mitigate the impact of coronavirus on the economy.

The Monetary Policy Committee (MPC) was scheduled to meet on April, but the coronavirus impact has led the RBI to enhance his rate-setting committee meet.

For our detailed RBI coverage, click here

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI’s direction on deferment of EMI dates ambiguous, says Chidambaram

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Former finance minister P Chidambaram raised concerns over the Reserve Bank of India’s decision to put EMIs on hold calling the measure ambiguous and half-hearted. He, however, welcomed the central bank’s decision to slash repo and reverse repo rate by 75 bps and 90 bps respectively in order to arrest the economic slowdown amid coronavirus crisis.

“The demand is that all EMI due dates must be automatically deferred, ” Chidambaram tweeted after the RBI’s monetary policy announcement.

“I had suggested that all due dates falling before 30 June may be deferred to 30 June. Borrowers have been made dependent on the bank concerned and will be disappointed,” he further wrote.

I welcome the RBI’s decision to cut the repo rate and measures to provide more liquidity.

However, the RBI’s direction on deferment of EMI dates is ambiguous and half-hearted. The demand is that all EMI due dates must be automatically deferred.

— P. Chidambaram (@PChidambaram_IN) March 27, 2020

The Reserve Bank of India has asked all lending institutions to allow three-month moratorium on EMI payments in order to infuse liquidity into the system. It has also allowed banks for deferment of interest on working capital loans for the next three months – until June 2020.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI’s 4.4% repo rate lowest ever; here’s a look at the historical benchmark rates

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In order to help the languishing economy in the wake of coronavirus outbreak, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) slashed repo rate by 75 basis points on Friday. Repo rate – the rate at which the central bank lends short-term funds to the commercial banks – now stands at 4.4 percent. The repo rate has, hence, fallen to the lowest ever. Before this, it had hit the lowest point of 4.74 percent in April 2009.

Here’s a look at the historical trends of benchmark rates:

(Source: RBI and BankBazaar)

The Reserve Bank of India, meanwhile, on Friday also asked all lending institutions to allow three-month moratorium on EMI payments in order to infuse liquidity into the system as the economy grapples with COVID-19 challenges. It has also allowed banks for deferment of interest on working capital loans for the next three months – until June 2020.

The liquidity measures announced by the RBI will make available a total Rs 3,74,000 crore to the country’s financial system.

For our detailed RBI coverage, click here

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow