Commentary on RBI amendments
Recently RBI has brought changes in Repo Rate & Moratorium
Repo Rate
Recently the RBI reduced the repo rate by 40bps points which means now the Repo rate is 4%.
How will this impact the economy?
Repo Rate, or repurchase rate, is the key monetary policy rate of interest at which the central bank or the Reserve Bank of India (RBI) lends short term money to banks, to essentially control credit availability, inflation, and the economic growth.
Hence, by decreasing the repo rate RBI is encouraging the banks to lend the credit to the borrowers, which will directly helps the business to get the funds at lower rate and cash will more smoothly flow in the already contracting Indian economy.
Existing borrowers who had borrowed or had taken other credit facilities at variable rate will also be given liberty to pay less interest cost on the principle. This will definitely reduce the finance cost burden to
some extent.
Installments to defer !
RBI extends the installment holiday for further 3 months. It is not mandatory to opt for this relief.
Whether it will be beneficial to opt for installment holiday ?
It is very important to note that RBI has only given capital repayment holiday, they didn’t waive off the interest on the principle, which means you will be paying more interest.
Therefore, only those borrowers would reap the fruits of installment holiday who are facing actual cash crunch and wants to protect their working capital for the uncertain future on account of Covid – 19, since the pandemic has equally effected the bread and butter of the salaried person as well as of a business man.
Secondly, you should thoroughly check your repayment schedule again with respect to interest costs. If you have freshly taken a loan then you should not opt the capital repayment holiday option since in the initial period of loan, the finance cost are relatively higher due to huge principal outstanding.
So it would be a better choice to consult a financial advisor for the same.
by – CA Abhijeet Mehra & CA Nitin Kaushik
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Very comprehensively you define the aspects of repo-rate and reverse repo-rate.
Beleive me one of the best article on interenet.
thanks a lot bro 🙂 keeps me motivated
Keep stumbling across the blog
Well described !
thank you Sir 🙂 thanks for investing your time into this