The central bank intervenes – editorials
“Eventually, we will heal and endure,” Governor of the Reserve Bank of India (RBI) Shaktikanta Das said in announcing the second set of monetary and credit measures to help India deal with the coronavirus pandemic and the ongoing blockade of combat it. that has reduced economic activity. The first set of measures was announced on March 27. Friday’s RBI announcements will benefit states, banks and financial companies, micro, small and medium-sized enterprises (MSMEs) and the agricultural sector.
The markets reacted positively, with bank stocks leading the way. This is because banks now have 180 days (compared to 90) to declare an account as a delinquent asset for borrowers who take advantage of the three-month payment default announced on March 27. They have also been granted 90 more days (from the current 210) for the resolution of the so-called stressed assets. Both will ensure that lenders are not affected by bad loans. RBI’s decision to announce specific operations that will target credit to finance companies, agriculture and MSMEs is an acknowledgment of the fact that similar operations announced on March 27 have greatly benefited state-owned companies and large corporations. And his decision to lower the reverse repo rate (the interest he pays on money held by banks) is a signal for banks to go out and lend more. That this was not happening is evident from the data shared by Mr. Das. On April 15, the amount under the RBI reverse repo window was Rs 6.91 lakh crore.
Finally, the central bank’s improvement of the advance provision (WMA) to states by 60% above the limit on March 31 means that states will be able to borrow more funds in the short term to cover their expenses, especially those related to Fight coronavirus disease, at a time when your income has seen a precipitous drop. This facility is open until September 30. Das noted that RBI, between February 6 and March 27 (including the measures announced that day), has infused liquidity equivalent to 3.2% of GDP. Today’s announcements will carry that number higher. He suggested that there could be more measures. RBI is clearly doing its part. It is now the government’s responsibility to present a broader aid and stimulus package that can help both individuals and businesses cope with the crisis. The industry has demanded a package of between Rs 14 lakh crore and Rs 16 lakh crore. It is time to deliver.