The central bank steps in
‘Eventually, we shall cure, and we shall endure,’ Reserve Bank of India (RBI) governor Shaktikanta Das said, announcing the second set of monetary and credit measures to help India cope with the coronavirus pandemic, and the ongoing lockdown to combat it that has curtailed economic activity. The first set of measures were announced on March 27. RBI’s Friday announcements will benefit states, banks and finance companies, micro, small and medium enterprises (MSMEs), and the agricultural sector.
The markets reacted positively, with bank stocks leading the march. That’s because banks now have 180 days (up from 90) to declare an account a non-performing asset for borrowers that avail the three-month repayment moratorium announced on March 27. They have also been given 90 more days (from the current 210) for the resolution of so-called stressed assets. Both will ensure that lenders aren’t weighed down by bad loans. RBI’s move to announce targeted operations that will direct credit to finance companies, agriculture and MSMEs is an acknowledgement of the fact that similar operations announced on March 27 have largely benefited State-owned companies and large corporations. And its decision to cut the reverse repo rate (the interest it pays on money banks keep with it) is a signal to banks to go out and lend more. That this wasn’t happening is evident according to data shared by Mr Das. On April 15, the amount under the reverse repo window of RBI was Rs 6.91 lakh crore.
Finally, the central bank’s enhancement of the ways and means advances (WMA) provision to states by 60% over the limit on March 31 means that states will be able to borrow more short-term funds to tide over their expenses, especially those related to combating the coronavirus disease, at a time when their revenue has seen a precipitous drop. This facility is open to them till September 30. Mr Das pointed out that RBI has, between February 6 and March 27 (including the measures announced that day), infused liquidity equal to 3.2% of GDP. Today’s announcements will take that number further up. He suggested that there could be more measures. RBI is clearly doing its bit. The onus is now on the government to unveil a larger relief and stimulus package that can help both individuals and businesses, cope with the crisis. Industry has demanded a package of between Rs 14 lakh crore and Rs 16 lakh crore. It is time to deliver.