Coronavirus: Increased liquidity, moratorium to help mend corporate finance

Corporate India, which was demanding a six-month moratorium on interest payment to the impact of Corona pandemic, received a shot in the arm from the Reserve Bank of India which injected a liquidity of Rs 3.7 trillion into the system and announced a three-month re-payment moratorium for all term loans outstanding, as on March 1, 2020.

Venu Srinivasan, chairman, TVS Motor, said the RBI’s steps will give a breathing space to banks and NBFCs for recognition of NPAs, cutting back on repo rates and SLRs. “The reduction of Cash Reserve Ratio by 100 basis points, and repo rate has put pressure on the banks to lend more. Giving a breathing space on the NPA recognition to RBI is a good step or it would have cascaded into a huge financial crisis and a lot of customers in the next two months are going to find it hard to pay the EMIs,” said he.

"The RBI has unleased a bazooka to deal with the economic pain and uncertainty prevailing in the wake of the COVID crisis. Acting swiftly and decisively, the RBI has used several levers to increase liquidity in the system. This empowers banks to commence or continue the emergency COVID credit lines opened up by several banks,” said Cyrill Shroff, of Cyrill Amarchand Mangaldas.

The RBI measures will help the infrastructure sector companies which are facing sudden collapse in their business. "The moratorium of three months for interest and principle payments along with a sharp cut in the CRR will ease the liquidity and help industry as well other segments of the economy. But more steps might be needed once the Government comes out with the much needed stimulus package to overcome the economic crisis arising of COVID 19,”said Rajiv Agarwal MD and CEO of Essar Ports Ltd.

The real estate sector, which was already in doldrums, expects that the moratorium on interest payment for three months will give some relief to the industry.

“The repo rate reduction has even breached the 2009 level mark when the economy was hit by the global financial crisis and the policy rate fell to 4.75 per cent. This is to ensure revival of growth, mitigate impact of covid19 while containing inflation,” said Ramesh Nair, CEO and Country head of JLL.

The total outstanding loans of real estate developers from commercial banks, NBFC s and HFCs is estimated to be around Rs 4.5 trilion as of March 2020. At the same time, this moratorium will definitely benefit homebuyers as these financial institutions have lent an estimated Rs 20 trillion as of March 2020. The EMIs from received by HFCs are around Rs 60,000 a month.

“’Given the present state of the real estate and the economy, the complete waiver of interest payment would have been better,” said he.

Real estate developer, Kamal Khetan of Sunteck Realty, said RBI’s announcements compliments the government’s fiscal and compliance measures. “The moratorium of 3 months on the term loans including home loans by RBI would provide relief for the real estate sector to focus more on the operational requirement and recalibrate the business strategies,” said he.