Coronavirus: Increased liquidity, moratorium to help mend corporate finance

The RBI measures will help the infrastructure sector companies which are facing sudden collapse in their business

Corporate India, which had been demanding a six-month moratorium on interest payment to blunt the impact of the coronavirus pandemic, received a shot in the arm from the Reserve Bank of India (RBI) on Friday. The central bank injected liquidity of Rs 3.7 trillion into the system and announced a three-month repayment moratorium for all term loans outstanding as of March 1, 2020.

Venu Srinivasan, chairman, TVS Motor, said the RBI’s steps will give some breathing space to banks and non-banking financial companies (NBFCs) for recognition of non-performing assets (NPAs), and in terms of repo rates and statutory liquidity ratio (SLR).
 

"The reduction of cash reserve ratio by 100 basis points, and repo rate has put pressure on the banks to lend more. Giving some breathing space on the NPA recognition front 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," he said.
 

Cyril Shroff of Cyril Amarchand Mangaldas said: “The RBI has unleashed a bazooka to deal with the economic pain and uncertainty prevailing in the wake of the COVID-19 crisis.”
 

“Acting swiftly and decisively, the RBI has used several levers to increase liquidity into the system. This empowers banks to commence or continue the emergency COVID-19 credit lines opened up by several banks.”
 

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

“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 out of COVID-19,” said Rajiv Agarwal MD and CEO of Essar Ports.

The real estate sector expects that the moratorium on interest payment will give some relief to industry.

“The repo rate reduction has even breached the 2009 level 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 COVID-19 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 housing finance companies (HFCs) are estimated to be around Rs 4.5 trillion as of March 2020. At the same time, this moratorium will benefit homebuyers as these financial institutions have lent an estimated Rs 20 trillion as of March 2020. The EMIs received by HFCs are around Rs 60,000 crore a month.
 

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

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

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