Coronavirus: Increased liquidity, moratorium to help mend corporate finance

The Indian company, which demanded a six-month moratorium on interest payments to mitigate the impact of the coronavirus pandemic, was shot in the arm on Friday by the Reserve Bank of India (RBI). The central bank has injected Rs 3.7 trillion in cash into the system and has announced a three-month repayment moratorium on all term loans outstanding as of March 1, 2020.

Venu Srinivasan, president of TVS Motor, said RBI measures would give banks and non-bank financial companies (NBFC) some respite for recognition of non-performing assets (NPA), and in terms of repo rates and legal liquidity ratio (SLR).

“Reducing the cash reserve ratio by 100 basis points, and the repo rate has put pressure on banks to lend more. Giving some relief on the NPA recognition front is a good step, if not that would have resulted in a huge financial crisis, and many customers will have trouble paying NDEs in the next two months, “he said.

Cyril Shroff of Cyril Amarchand Mangaldas said: “The RBI has launched a bazooka to cope with the economic pain and uncertainty that reigns following the COVID-19 crisis.”

“Acting quickly and decisively, the RBI used several levers to increase liquidity in the system. This allows banks to start or continue the COVID-19 emergency lines of credit opened by multiple banks. “

RBI measures will help the infrastructure sector, which has been in the doldrums.

“The three-month moratorium on interest and principle payments and a large reduction in the CRR will facilitate liquidity and help the industry and other segments of the economy.” But other measures may be necessary once the government has put in place the stimulus package needed to overcome the economic crisis arising from COVID-19, “said Rajiv Agarwal MD and CEO of Essar Ports.

The real estate industry expects the moratorium on interest payments to ease the industry.

“The reduction in the repo rate even exceeded the level of 2009 when the economy was hit by the global financial crisis and the policy rate fell to 4.75%. This is to ensure the revival of growth, to mitigate the impact of COVID-19 while controlling inflation, “said Ramesh Nair, CEO and country manager of JLL.

The total outstanding amount of loans granted to property developers by commercial banks, NBFCs and housing finance companies (HFCs) is estimated at around 4.5 trillion rupees in March 2020. At the same time, this moratorium will benefit home buyers because these financial institutions loaned an estimate of 20 trillion rupees in March 2020. The NDEs received by the HFCs are around 60,000 crores rupees per month.

“Given the current state of the real estate sector and the economy, the complete exemption from interest payments would have been better,” said Nair.

Kamal Khetan of Sunteck Realty said the RBI’s announcements compliment the government’s tax and compliance measures.

“The moratorium on term loans, including home loans, by the RBI would provide relief to the real estate sector to focus more on operational needs and recalibrate business strategies,” he said.

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