Friday, June 9, 2023

Concern for Growth


By Satish Singh

The Reserve Bank of India (RBI) did not make any change in policy rates in the monetary review on 7th April. This decision was unanimously decided by the Monetary Policy Committee. Therefore, like earlier repo rate will remain at 4 percent, reverse repo rate at 3.35 percent and MSF and bank rate will remain at 4 percent. According to the committee, to maintain economic growth, it is necessary to keep the monetary stance liberal.

The Reserve Bank is committed to keeping inflation within the stipulated range. However, the Reserve Bank has revised the inflation estimate for the fourth quarter of FY 2020-21 to 5 per cent, from 5.2 per cent earlier. Retail inflation has been estimated to be 5.2 per cent in the first and second quarter of the current financial year. It is expected to be at 4.4 percent in the third quarter.

In the last financial year, the Reserve Bank had purchased bonds worth Rs 3.13 lakh crore from open market operations, while in the first quarter of FY 2021-22, it would buy bonds worth Rs 1 lakh crore, which started on April 15 for Rs 25,000 crore. Buying bonds will be done. This initiative of the Reserve Bank is expected to increase the liquidity in the market.

On Tap TLTRO scheme was implemented to address some of the risky areas, including non-banking financial company (NBFC) companies, due to the Corona pandemic till 31st March 2021. In view of the second wave of Corona crisis, the duration of the scheme has been extended to 30 September 2021, so that the credit facility can be provided smoothly to the distressed areas.

The Reserve Bank of India has already made available 75,000 crore rupees to financial institutions during April to August 2020 as part of the refinance scheme of the government. Now again in the monetary review, the Reserve Bank has said to give 50,000 crore rupees to financial institutions. Under this, NABARD will get Rs 25,000 crore, National Housing Bank (NHB) will get Rs 10,000 crore and SIDBI will be given Rs 15,000 crore. This will make it possible to give more credit to rural areas, which will accelerate economic activities. The Reserve Bank has also increased the total special gross borrowing limit of states and union territories to Rs 47,010 crore. The Reserve Bank will increase the flow of cash in the market through debt and other measures to increase demand and supply in the market and accelerate growth.

The Reserve Bank of India has given relief to companies not using commercial debt (ECB) from foreign markets due to the lockout in the monetary review. The funds raised through ECB before 1 March 2020 can be kept as unused in the country’s banks till 1 March 2022. Under the ECB rule, borrowers can hold such money a maximum of 12 months as term deposits in India. In this context, the Reserve Bank will issue separate guidelines.

Regulatory guidelines for Asset Reconstruction Companies (ARCs) were issued in the year 2003. The gross non-performing assets (GNPA) of all Scheduled Commercial Banks (ASCBs) amounted to Rs 0.68 lakh crore in the year 2003, which increased 13 times to Rs 9 lakh crore in March 2020. As per the latest list, the Reserve Bank of India has 28 ARCs registered, but has not been able to deliver the expected results in the direction of reducing stressed assets. Therefore, the existing ARC will have to make their work more effective. It would be pertinent to mention here that till December 2020, the recovery under the Indian Insolvency and Bankruptcy Code (IBC) was 39.80 per cent, amounting to Rs 1.97 lakh crore, while the total amount of the claim was Rs 4.96 lakh crore. To increase liquidity in NBFCs, the Reserve Bank has allowed banks to classify them as Priority Sector Lending (PSL) on lending to NBFCs (excluding MFIs) registered by September 30, 2021. In case the percentage of loan should not be more than 5 percent of the total PSL. This loan will be given to micro, small and medium enterprises (MSME), housing, agriculture etc.

Now the Reserve Bank of India will periodically publish “Financial Inclusion Index” to measure the performance of financial inclusion in India. Through this, the real status of financial inclusion campaign will be known, which will enable the government to take corrective steps. The Reserve Bank has increased the lending limit from Rs 50 lakh to Rs 75 lakh on the basis of warehouse receipt. With this initiative, the farmers will have to face the problem of low cash, which will enable them to carry out farming operations efficiently.

In the Corona era, by increasing the online facilities, the Reserve Bank has increased the deposit limit of payment banks like Airtel, Paytm and India Post from Rs 1 lakh to Rs 2 lakh. This facility will come into force with immediate effect. Now payment banks and fintech companies will also be able to transfer funds with the help of RTGS and NEFT. According to the Reserve Bank, after the completion of the KYC process, digital wallets like Paytm, Mobikwik and prepaid cards of non-banking companies will be given the facility to withdraw cash.

It is believed that with this decision of the Reserve Bank, the mobile wallet will be used as an ATM. At present, the approval to withdraw cash from such cards is only to the Prepaid Payment Instrument (PPI) (Credit-Debit Card) issued by banks. Forex cards, digital wallets and non-bank ATM cards come under this PPI.  These decisions of the Reserve Bank will give a further boost to online banking and provide relief to the market facing cash shortage.

Listed corporate companies reported better growth in Q3 FY2021. Corporate companies such as automobile, FMCG, cement, steel, consumer durables sector are expected to register growth in the fourth quarter of FY 2021. An analysis of ratings from various sectors shows that the debt ratio has improved since the second quarter of FY 2021. Debt ratio has improved by 0.24 percent in the first half of FY 2021. In some sectors such as capital goods, healthcare, pharma, steel, cement etc. the debt ratio has improved.

Rural demand, urban demand, agricultural production, stabilization of economic activities, etc. are important factors affecting development. Therefore, the Reserve Bank is committed to save the economy and to continue the reform process and is also continuously implementing corrective measures in this direction.

(Author is Chief Manager at State Bank of India, Mumbai and editor of “Aarthik Darpan” an in-house journal of SBI.  Singh is also a freelance writer.  The views expressed are personal opinion of the author. He can be reached at [email protected] and [email protected].)

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