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Equity | News | Hot Pursuit
Hot Pursuit
Banks stocks decline after RBI extends loan moratorium period by 3 months
(10:29, 22 May 2020)
Among private lenders, Bandhan Bank (down 3.25%), Federal Bank (down 1.91%), Axis Bank (down 1.61%), ICICI Bank (down 1.02%), HDFC Bank (down 0.93%), Kotak Mahindra Bank (down 0.86%) and IndusInd Bank (down 0.49%) tumbled.

Among PSU banks, State Bank of India (down 1.09%), Union Bank (down 1.08%), Bank of Baroda (down 0.53%), Canara Bank (down 0.39%), Punjab National Bank (down 0.19%) and Indian Bank (down 0.11%) declined.

RBI Governor Shaktikanta Das briefed the media at 10 am today. Das had announced a three month moratorium for all term loan repayments between 1 March and 31 May at his last address in April. The loan moratorium will be extended till 31 August. This makes it a six-month moratorium. He added that the lending institutions are being permitted to restore the margins for working capital to the origin level by 31 March 2021.

Meanwhile, the Reserve Bank of India's Monetary Policy Committee (MPC) Friday unanimously decided to slash the repo rate by another 40 basis points to 4%. The interest rate decision was taken to revive growth and mitigate the impact of the coronavirus pandemic. The announcement came following a three-day off-cycle meeting of the MPC, held between 20 and 22 May 2020.

On the basis of an assessment of the current and evolving macroeconomic situation, MPC decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 40 bps to 4% with immediate effect. Accordingly, the marginal standing facility (MSF) rate and the Bank Rate stand reduced to 4.25% from 4.65%. The reverse repo rate under the LAF stands reduced to 3.35% from 3.75%. The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target.

These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/-2%, while supporting growth.

The MPC is of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress. The impact of the shock has been compounded by the interaction of supply disruptions and demand compression. Beyond the destruction of economic and financial activity, livelihood and health are severely affected. Even as various measures initiated by the government and the Reserve Bank of India work to mitigate the adverse impact of the pandemic on the economy, it is necessary to ease financial conditions further. This will facilitate the flow of funds at affordable rates and revive animal spirits. With the inflation outlook remaining benign as lockdown-related supply disruptions are mended, the policy space to address growth concerns needs to be used now rather than later to support the economy, even while maintaining headroom to back up the revival of activity when it takes hold.

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