The RBI policy is best summed up in this quote. Since March 27, the RBI has acted proactively and ahead of time to contain the fallout of the Covid-19 pandemic.
First, we expect the terminal repo rate to be cut further by 100 basis points in the current cycle even after Friday’s rate cut. An aggressive cut in repo rate is the effective policy response to adjust the real rate as inflation is set to collapse in FY21. This will have a significant sobering impact on asset quality of banks, as RBI research shows.
Additionally, for working capital deferment, with around 75 per cent of such debt rated A and above, the entities are expected to pay the accumulated interest as scheduled or to the funded interest term loan (FITL). We must appreciate that this in itself is a mini structuring that the RBI has announced and the current issue is more of a cash flow mismatch rather than an asset quality issue. We must endeavor to not allow this mismatch to degenerate into an asset quality issue.
Thus a relaxation in such norms in current exceptional circumstances may be considered, but strictly with a well laid out calendar of returning to the current norm of 180 days as deemed appropriate by RBI.
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