BOOST FOR THE REAL ESTATE SECTOR AMID CORONAVIRUS LOCKDOWN

Repo rate, Reverse Repo Rate, 3 months EMI Holiday, RBI's push for liquidity in the market, Reduction in CRR of Banks.

Seen as a significant push by the RBI to encourage Banks and NBFCs to introduce liquidity back in the market instead of reserving funds with the RBI.

• REPO RATE: Reduced by 75 basis point to 4.4%

• Reverse REPO RATE: Dropped to 4% by a cut of 90 basis points

In a bid to deal with the economic slowdown and job layoffs in the unorganized sector, RBI undertook two buy/sell swap auctions amounting USD 5 billion each. This move has injected liquidity of Rs 69,435 crore in the banking system, and a sperate open market purchase pumped Rs 92,500 crore in the system.

What is Repo and Reverse Repo rate?

• REPO Rate

The rate of interest at which the Central Bank of a country, Reserve Bank of India (RBI) in India's case, lends out money to the commercial banks operating within the country in scenarios of funding shortfalls.

• Reverse REPO Rate

Reverse REPO Rate is the rate of interest at which the RBI borrows money from commercial banks of the country.

NOTE: An increase in Reverse Repo Rate results in a decrease in the money supply and vice-versa.

What are Basis Points?

Basis point is a unit of measurement in finance which indicates a change in percentage.

1 basis point or 1 bps is equivalent to 1/100th of a percent or 0.01%.

3-month Moratorium on repayment of loan instalments (EMIs)

Coming in as a big relief to the borrowers, RBI announced a three-month moratorium on payment of EMIs of loans outstanding on March 1, 2020.

• A moratorium of Loan EMIs is the period during which you do not have to pay an EMI on loan taken. Also called as an EMI Holiday.

How this 3-month Moratorium affects your home loan?

RBI's announcement of a 3-month moratorium on loans outstanding as of March 1, 2020, allows banks and other NBFCs to postpone payments of instalments of all term loans (including Home loans, Personal loans and Car loans).

• The loan EMI payments (principal and interest) will resume post the expiration of 3 months moratorium period.

• Non-payment of EMIs during these 3 months won't reflect negatively in one's CIBIL score.

Cash Reserve Ratio (CRR) cut down to 3%

Cash Reserve Ratio or CRR is the part of a bank's total deposit mandated by RBI to be maintained by banks in the form of liquid cash.

CRR performs a crucial function of acting as a reference mark or the base rate.

• Base Rate is the minimum rate of lending or the Rate of Interest below which a bank is not allowed to lend loans.

RBI brought down the CRR to 3% by a cut of 100 basis points. This order, in effect from March 28, will unlock liquidity of Rs 1.37 lakh crore in the Indian market.

Sources :

1. Cited and Referred from Rbi Cuts Repo Rate By 75 Bps To 4.40% To Mitigate Covid-19 Impact ETMarkets.com - https://economictimes.indiatimes.com/markets/stocks/news/rbi-bites-the-bullet-cuts-repo-rate-by-75-bps-to-4-40-to-mitigate-covid-19-impact/articleshow/74840559.cms

2. Rbi's 3-month Moratorium: Higher Interest If You Defer Emi Payment For Three Months, Ians - https://www.cnbctv18.com/finance/rbis-3-month-moratorium-higher-interest-if-you-defer-emi-payment-for-three-months-5578341.html