Coronavirus Outbreak: Nirmala Sitharaman took care of the poor, Shaktikanta Das has taken care of middle class by cutting interest rates

“I was waiting for some relief measures on EMI (equated monthly instalments) payments from Finance Minister Nirmala Sitharaman in her announcement yesterday. I was disappointed that the measures announced were all for the poor. The government has forgotten the middle class too is affected, I thought.  But the RBI governor’s announcement today on deferment of EMI payments is a bonus for the middle class. Though I don’t know how my organisation will pay me my monthly salary since I am at home and so are the rest of my colleagues. In case my owner does not pay me my salary, I cannot blame him, too. I am aware the government has said that no employee should lose his/her salary over lockdown and coronavirus pandemic. But if there is no input, what can my owner do? And that was a worry for me until the RBI governor’s press conference this morning, " said 34 year-old Inayat Akbar. Talking to Firstpost, Akbar, who works as a senior accountant at a services firm, said, he was relieved to hear Shaktikanta Das, governor, RBI, announce deferred EMI payments. “I am happy now. I was worried a lot about my payments,” said the sole-earning member of a family of four. EMIs are one part of the equally divided monthly outgo to clear off an outstanding loan within a stipulated time frame. It is dependent on various factors, such as principal borrowed, the rate of interest, tenure of the loan and monthly/annual resting period. Some like Neelam Kadam, a home-maker, was happy that the RBI has given much-needed solace to salaried class by deferring loan EMIs for a three-month period. “Since our prime minister Narendra Modi had announced a complete lockdown for 21 days, my husband has not been able to attend work. We are not sure if his boss will pay him his salary during this period and that worried us a lot. Now RBI has given us some relief regarding the home loan repayment. It’s a good thing”, she said. According to reports, the RBI has only allowed banks to allow a moratorium. Individual banks will have to allow suspension of EMIs. This means that unless you have specific approval from your bank, your EMIs will still be deducted from your account. [caption id=“attachment_5715801” align=“alignleft” width=“380”]  Shaktikanta Das, RBI governor. Image courtesy: Twitter[/caption] The RBI on Friday asked all lending institutions to a 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, i.e. until June 2020. Addressing a press conference, RBI Governor Das said these are extraordinary circumstances, and unprecedented measures are required to support the sagging economy as all the economic activities have come to a halt. “With respect to the deferment of instalments for various kind of loans such as home loan and car loans, the announcement is extremely crucial and important to give the liquidity benefit to the borrowers. However, there is no explicit mention about the incremental interest, if any, applicable due to the deferment of these instalments”, said Abhishek A Rastogi, Partner at Khaitan & Co. Prime Minister Narendra Modi announced a complete lockdown across the country for 21 days from 25 March midnight, asserting that social distancing is the only way out for the country in its decisive battle against the coronavirus. On 26 March, the government announced a Rs 1.7 lakh crore stimulus that included free foodgrain and cooking gas to poor for three months, and cash doles to women and poor senior citizens as it looked to ease the economic impact of the nationwide lockdown. Coronavirus will impact India’’s economic growth “severely”, as the COVID-19 lockdown is causing significant disruption across multiple sectors, including manufacturing, oil, financial, among others, said news reports. Moody’s Investors Service on Friday slashed its estimate of India’s GDP growth during 2020 calendar year to 2.5 percent from an earlier estimate of 5.3 percent, on account of the rising economic cost of the coronavirus pandemic. This compares to 5 percent growth in 2019. Kapil Rana, Chairman and Founder, HostBooks Limited, said the RBI  rate cut is driven by fear of recession and slowdown as Moody’s cut India growth forecast. “It is indispensable in the current situation; this will increase the market liquidity and ease the business functions to some extent. In addition, a moratorium of three months of EMIs on all outstanding loans is a great immediate relief for business as well as individuals- this one is the remarkable decision by the RBI,” he added. The stimulus measure announced by the finance minister Nirmala Sitharaman looks into the immediate requirement of the lower income class in the form of food and cash transfer, some experts felt. Rajani Sinha, Chief Economist and National Director-Research at Knight Frank India said, the size of the stimulus is ‘definitely not commensurate’ with the economic requirement in midst of this severe disruption. Other developed countries have come up with much bigger stimulus measures. “There needs to be targeted measures for the SME segment and some of the other sectors that have been severely hit by the turmoil. Fiscal stimulus by the government should be coupled with deep rate cut by the RBI and some form of loan restructuring or loan moratorium in these troubled times,” Sinha said. Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas termed the RBI’s measures ‘a bazooka’ to deal with the economic pain and uncertainty prevailing in the wake of the COVID crisis. The RBI has acted swiftly and decisively, he said, adding the central bank 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 of banks. “Crucially, in recognition of the inevitable stress in the next few months the RBI has permitted all lenders regulated by it to provide a moratorium on all instalments for term loans and interest payments on working capital loans- specifying that such a payment morotorium will not result in a adverse asset classification. This provides a much needed respite for borrowers and lenders in these trying circumstances and should soften the recovery period,” he said.