oppn parties Now RBI Gets Into The Covid-19 Relief Mode

News Snippets

  • India's sovereign green bonds were oversubscribed four times as the RBI received 266 bids worth Rs 32892cr agaisnt the target of Rs 8000cr
  • Google tweaks its Android and India app store policy to allow manufacturers and users to choose certain things instead of compulsorily using Google apps after the CCI order and fine for unfairly dominating the market
  • Former US secretary of state calls former Indian external affairs minister Sushma Swaraj a "goofback" and a "hinterland political hack". MEA S Jaishankar slams him
  • Jamia screening of BBC documentary on Gujarat riots cancelled after the university was turned into a fortress and later 13 students were detained by the police
  • Supreme Court grants conditional interim bail for eight weeks to Lakhimpur Kheri accused Ashish Mishra. The bail can be further extended based on his conduct. He was asked to stay outside Delhi-NCR and UP and surrender his passport
  • After the JNU administration tried to thwart the students from screening the BBC documentary on the Gujarat riots and PM Modi, now students of Presidency and Jadavpur universities in Kolkata have decided to screen it 5 times next week
  • While a US research frim Hindenburg says its analysis found the Adani group overleveraged and claimed that its bubble will burst very soon and that sent the price of group companies crashing (Adani companies lost a combined Rs 55000cr), Adani group said the report was 'baseless' and 'malicious'
  • This time Enforcement Directorate arrests TMC spokesperson Saket Gokhale under PMLA for money laundering
  • Padma awards announced on Republic Day: Mulayam Singh Yadav, architect Balkrishna Doshi and ORS pioneer Dilip Mahalanobis get Padma Bibhushan posthumously, Padma Bhushan ius awarded to Kumar Mangalam Birla and 8 others and 91 get Padma Shri
  • Stocks fall big time on Wednesday on F&O expiry, finalncial and banks take big hit: Sensex tumbles 773 points to 60205 and Nifty 226 points to 17892 even as the market volatility meter shoots up by 8.51%
  • World Cup hockey: Germany stun England 4-3 to reach semifinals; Netherlands beat Korea 5-1 to enter last four
  • Australian Open: Sania Mirza and Rohan Bopanna reach the finals
  • Suryakumar Yadav is named ICC Cricketer of the Year 2022 and Renuka Singh gets the ICC Emerging Cricketer of the Year 2022 award
  • BCCI gets a whopping Rs 4670cr in the auctions for the 5 teams in WIPL or as it will be known now, WPL. Adani Sportline gets Ahmedabad for Rs 1289cr while Mumbai Indians get Mumbai for 913cr
  • Calcutta HC overturns the hookah bar ban in Kolkata by saying that it is not an illegal trade
India Commentary Wishes A Happy Republic Day To All Its Readers /////// India Commentary Wishes A Happy Basant Panchami And Saraswati Puja To All Its Readers
oppn parties
Now RBI Gets Into The Covid-19 Relief Mode

By Sunil Garodia
First publised on 2020-03-27 17:49:09

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

After the relief package for the poor and the marginalized announced by the finance minister Nirmala Sitharaman yesterday, it was the Reserve Bank of India's turn to intervene to alleviate the sufferings of industry and loan account holders as well as try and offer a helping hand to the broader economy that is gasping for breath under the twin blows of a running slowdown and the lethal disruption caused by the Covid-19 pandemic.

The MPC meeting was scheduled to be held from March 28 to 31. But it was brought forward to March 25 to 27 as the Finance Ministry had egged the RBI to intervene at an early date.  The major decisions taken by the MPC were:-

1.       The repo rate was cut by a whopping 0.75 basis points to take it to 4.40 percent

2.       The reverse repo rate was cut by an even larger 0.90 basis points to 4 percent

3.       The CRR was cut by 100 basis points and now stands at 3 percent of net demand and time liabilities.

In addition to this, banks were advised to allow a moratorium of three months on all EMIs or loan (principal and interest) repayments. The RBI clarified that any delay in payment of EMIs and loans is not to be classified as default and will not impact the credit history of the borrowers.

As a result of the cut in repo rate, the EMIs on loans will come down if the banks pass it on to their customers. In the past, it was seen that banks did not pass the rate cut and even when they did, it was much lower than the relief granted by the RBI. But in the instant case, if the banks pass on even 0.50 basis points to the customers, it will result in a huge benefit to a large cross-section of the people. As a result of the cut, banks can now lend to industry and other borrowers at a much-reduced rate and this can spur demand for funds.

To ensure that banks do not suffer from liquidity, the CRR requirement has been relaxed. This is likely to release nearly Rs 3.74 lakh crore in the banking system. Simultaneously, the RBI has cut the reverse repo rate to just 4%. This means that banks will have no incentive to park their excess liquidity with the RBI and would be looking to lend it to borrowers to gain a better rate of interest.

This will mean that industry, grappling with disruption in income and the need to pay fixed costs like wages, salaries, rents and maintenance costs, will have access to fresh funds at cheaper rates to tide over this period. If banks listen to the RBI and allow deferment of EMIs and loan repayment, that will be an added bonus and will mean a huge relief for industrial units facing a severe liquidity crunch.

The only criticism one can genuinely make is that the RBI should not have just advised the banks to allow deferment of loan repayment. This has left the door open for them to take individual calls. Considering the stress borrowers are suffering, the RBI should have directed the bank to do so. That would have ensured an across the board compliance and immediate relief to all borrowers.

Also, the RBI should now study in detail which sectors are likely to bear the brunt of the Covid-19 related disruption. The ones that immediately come to mind are aviation, hospitality, retail (other than essential services) and services. It should study the impact they are likely to suffer and then announce sector-specific relief packages to give a lifeline to these sectors.