The impact of COVID-19 lockdown has been quite harsh in several sectors. To ease the lockdown effects, the Bank of India has opened up the liquidity floodgates for several factors, including banks. RBI has reduced the core interest rate supply by 75bps and also allowed equated monthly installments to be deferred by three months. The main agenda of this move is to fight the economic impact of the countrywide lockdown to control the spread of the novel coronavirus. The repo rate was reduced to 4.4% while the reverse repo rut was reduced to 4%. The main agenda was reducing the repo rate was aimed at promoting banks to lend more money instead of depositing their excess liquidity with RBI.
The extension of the Moratorium period:
The moratorium period has been extended by three months, so the new deadline is August 31. Earlier, on March 1, 2020, RBI announced a three-month moratorium on all term loans. During the Moratorium period, the borrowers can skip paying EMI’s, but that doesn’t mean that the EMI’s are completely waived off. The borrower of the car loan has to pay for accrued interest at the end of the moratorium.
After the repo rate cut, it is expected that the cost of funds will come down for banks borrowers will stand to gain as the EMI’s on the car loan is expected to fall. If you borrow loans linked to the marginal cost of the funds-based lending rate (MCLR), it will help you pay lower EMI’s on the loan you borrowed. Currently, from October 1, 2019, the car loans are linked to the repo rate, which is an external benchmark given by RBI. When there is a revision in the repo rate, the auto loan interest rate also gets revised. Hence, one needs to keep a vigilant check on the changes made by the RBI before doing any investment.