​Summary: The coronavirus outbreak has created a tough economic environment. Some financial measures have been announced to hopefully ease the financial situation for the common man. The RBI decreased the repo rate and reserve rate. It has offered a 3-month relief period for EMI payments. Many banks are offering emergency loans and personal loans. 

​The RBI, banks and other institutions are trying to do their bit in the COVID-19 crisis. Let us look at the various steps and how they impacts us –

1) Cut in repo rate and reverse repo rate
The RBI, announced a cut in the repo rate by 75 basis points and a cut in the reserve repo rate by 90 basis points. The new repo rate now stands at 4.4% and reserve repo rate at 4%. The aim here is to provide some protection for lenders and borrowers in the current economic turmoil that has occurred due to the COVID-19 outbreak. 
So what does this mean for the retail borrower or people who have car loans, home loans, etc. Will it affect FD holders?
Impact On Borrowers

• The interest rate on loans of some banks is linked to the repo rate (external benchmark). As the repo rate has fallen, banks are mandated to transfer the benefit to the customers and reduce the interest rate on loans.
• The interest rate on loans of a few banks is linked to the Marginal Cost-based Lending Rate (MCLR). Here the rate depends on internal factors as well. Borrowers will benefit only if the banks reduce their loan rates. Moreover there are certain loan reset periods when the banks change the interest rate. Only when your home loan falls in the reset period, the interest rate can be changed. Usually, interest rates based on external benchmarks are more volatile then interest rates based on MCLR.
• The interest rate on new loans will be lower considering the rate cut.

Check out the new interest rates of some banks –

​But do remember that the cut in repo rates will result in falling interest rates for Fixed deposits. SBI has already cut its retail term deposit interest rates by 0.20% to 1% across different FD tenors and types of FDs.

2) 3-month moratorium for EMIs
The RBI has also announced a three month moratorium for borrowers. This means borrowers of term loans will get a relief from paying their EMIs for three months. The EMIs that have to be paid between March 1, 2020 and May 31, 2020 can be postponed. You can resume payment in June 2020. These term loans include agricultural term loans, crop loans, corporate loans, home loans, education loans and personal loans and outstanding credit card dues. Loans taken from banks, non-banking finance companies and housing finance companies are eligible for this relief. Interest will continue to accrue during this relief period which means your overall interest outgo will increase. Do check with your bank if this relief option is mandatory or optional. If you opt to postpone your EMI payment, it will not impact your credit score adversely.

3) Tax Related Measures
It has been announced that taxpayers can complete their tax-saving actions until June 30, 2020 for FY2019-20. The earlier deadline was March 31, 2020. People can invest in tax-saving instruments, file appeals, furnish returns and work on other tax compliance actions till June 30, 2020.

4) Other Initiatives

• Banks and other companies have introduced some initiatives to help people tide over the cash crunch –
  • Indian Bank has announced special COVID emergency loans for its retail and corporate customers.
  • Union Bank of India has announced that existing corporate customers can avail of loans up to 10% of their working capital limit at reduced interest rates during this time.
  • SBI has launched a loan scheme wherein borrowers can avail up to 10% of their existing fund-based limits at a concessional interest rate of 7.25%.
• Various vehicle makers such as Hyundai, Maruti, Tata Motors, TVS Motor, and Volkswagen have offered to extend warranties expiring between March and May by two-three months post May 31. Free services scheduled between March and May would be honoured for a couple of months after the lockdown period.