In the last bi-monthly monetary policy review announced by the Governor, Shaktikanta Das on August 6, 2020, the Reserve Bank of India (RBI) had kept the policy repo rate — the interest rate charged by the RBI on loans it gives to banks — unchanged at 4%. It had also kept the reverse repo rate or the interest rate the banks get on their surplus funds parked with the RBI unchanged at 3.35%. It also continued with the “accommodative” stance of the monetary policy as long as necessary to revive growth and mitigate the impact of Covid-19, while ensuring that inflation remains within the target. In the build-up to the next bi-monthly review (originally scheduled for October 1, 2020, this...
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Category: Money, inflation & interest rate
Don’t bank on banks
There’s no pressing need for a firm hit by the crisis to rush to banks for relief. To enjoy the fruits when the going is good and come to the bank or Govt for help when in crisis is unacceptable On March 27 the Reserve Bank of India (RBI) Governor, Shaktikanta Das, announced a comprehensive action plan to resuscitate the economy devastated by the Coronavirus. Apart from measures to increase availability of credit and reduction in the cost of capital, the plan sought to ease the stress of loan repayments on businesses and individuals. Among others, this included a three-month moratorium on payment of instalments in respect of all term loans outstanding on March 31. On May 22, Das announced extension of...
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Banking on banks for bail-out
On March 27, 2020, the Reserve Bank of India (RBI) governor, Shaktikanta Das announced a comprehensive action plan to resuscitate the economy devastated by the Corona virus. Apart from measures to increase availability of credit and reduction in the cost of capital, the plan sought to ease the stress of loan repayments on businesses and individuals. Amongst others, this included 3-month moratorium on payment of installments in respect of all term loans outstanding on March 31, 2020. On May 22, 2020, Das announced extension of the moratorium for three months till August 31, 2020. To ease the burden of payment on those who availed of working capital facilities, the governor allowed them to convert accumulated interest for the deferment period...
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Scrap priority sector lending
Faced with contraction in GDP (gross domestic product) growth by a whopping 23.9% and credit growth at a low of 6.7% during the first quarter of current financial year (FY), on September 4, 2020, the Reserve Bank of India (RBI) has brought about changes in the norms for priority sector lending (PSL). The commercial banks, including foreign banks, are required to mandatorily earmark 40% of the adjusted net bank credit for PSL. Regional rural banks (RRBs) and small finance banks (SFBs) are required to allocate 75% of adjusted net bank credit (ANBC) to PSL. Within the over 40% limit for PSL, there are sub-limits; for instance, agriculture gets 18% of the ANBC. Although, PSL guidelines do not lay down any...
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Bailout or blowout?
When the wheels of the economy on ground zero are stuck and there is little demand for credit, lowering of interest rates will not help in any way Following marathon deliberations of the Monetary Policy Committee (MPC) over three days, the Reserve Bank of India’s (RBI’s) Governor, Shaktikanta Das, made four important announcements under the central bank’s bi-monthly monetary policy review on August 6. First, Das warned that India’s real Gross Domestic Product (GDP) growth is set to contract in 2020-21 but did not give a specific forecast. He also cautioned that “while an early containment of the Covid-19 pandemic may impart an upside to the outlook, a more protracted spread of the pandemic, deviations from the forecast of a normal monsoon...
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Policy rate – stop its downward march
Unlike his predecessors (read: Raghuram Rajan: 2013 – 2016 and Urjit Patel: 2016 – 2018) who used changes in the policy rate – interest rate charged by the Reserve Bank of India (RBI) on loans it gives to banks – primarily as an instrument of targeting inflation, the incumbent governor, Shaktikanta Das has used it mainly for spurring economic growth but without much success. Das – a former economic affairs secretary – who took charge in December 2018 after untimely exit of Urjit Patel handed out a cumulative reduction of 1.35% during 2019. As a consequence, the rate was down to 5.15%. In the wake of deadly Corona virus, just after the first phase of lockdown announced by Prime Minister,...
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A ‘bad bank’ is a bad idea
With the Govt having recapitalised PSBs with Rs 2,65,000 crore in the last three financial years alone, it makes no sense to pump in more of the taxpayers’ money into NPAs Even as the efforts made by the Narendra Modi Government — including an asset quality review (AQR) by the Reserve Bank of India (RBI), enactment of the Insolvency and Bankruptcy Code (IBC), amendment of the Banking Regulation Act (BRA) and massive capital infusion in public sector banks (PSBs) — were beginning to yield results in terms of reduction in non-performing assets (NPAs), the crisis triggered by Covid-19 has turned the clock back. According to a report by India Ratings and Research (Ind-Ra), the impact of the pandemic and the associated policy...
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Bad bank – a bad idea
Even as the efforts made by Modi – government including an asset quality review (AQR) by the Reserve Bank of India (RBI), enactment of the Insolvency and Bankruptcy Code (IBC), amendment of the Banking Regulation Act (BRA), massive capital infusion in public sector banks (PSBs) etc were beginning to yield results in terms of reduction in non-performing assets (NPAs) – a euphemism for loans turning bad – the crisis triggered by Covid – 19 has turned the clock back. According to a report by India Ratings and Research (Ind-Ra), the impact of Covid-19 and the associated policy response is likely to result in an additional Rs 167,000 crore of debt from the top 500 debt-heavy private sector borrowers turning NPAs between...
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Scams – why there is no check
Any promise to act against corrupt politicians, bureaucrats, dubious businessmen and others who misappropriate precious resources is always welcome by the people. This was an overarching factor that catapulted Narendra Modi (he made grandiose promise to eliminate corruption and scams) to the seat of power in 2014 and for a second term in 2019. In case however, the required action is missing, they feel cheated; the pain is even more when the country is hard pressed for resources as during the current year. In an affidavit filed in the Supreme Court (SC) on July 6, 2020, the Union government has suggested ‘there was a trend of people accused in high-value economic offences approaching the SC directly – instead of an...
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Tackling bank frauds
An overarching promise, Prime Minister, Narendra Modi had made at the time of taking charge for his first term beginning May, 2014 was to root out nepotism and corruption in all matters of governance – be it in various ministries/department or its agencies including public sector undertakings (PSUs) including banks. Modi’s clarion call to all in this regard was encapsulated in the euphemism he often used viz. ‘naa khaoonga, naa khaane doonga’ (neither, I will take bribe, nor allow anyone else to take). To be fair to Modi, his commitment to this overarching principle is reflected in all his policy decisions, administrative actions, delivery of services and overall governance in every sphere. That he has made an mark in dealing...
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