oppn parties RBI Is Trying Hard, But The Issue Has Escalated Beyond What It Can Do

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  • K C Tyagi of the JD(U) dropped a bombshell when he said that Nitish Kumar was offered the post of prime minister for switching sides. Opposition leaders rubbished the claim
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  • T20 WC: India take on Pakistan today. Telecast to begin at 8pm IST
  • T20 WC: Afghanistan stun New Zealand and Bangladesh win against Sri Lanka
  • T20 World Cup: Australia beat England by 36 runs. This spoils England's chances of making the playoffs as they have lost both their matches till now
  • Heat wave continues in the country as monsoon moves slow
G7 commits to promote India-Europe corridor
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RBI Is Trying Hard, But The Issue Has Escalated Beyond What It Can Do

By Sunil Garodia
First publised on 2020-04-17 19:27:46

About the Author

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

The RBI governor held a press conference today to announce further measure to shore up the financial system that is burdened, like the rest of the economy, by the Covid-19 crisis. He announced a slew of measures like cutting the reverse reporrate by 25 basis points to make it 3.75%, releasing Rs 50,000 crore liquidity support for NABARD (Rs 25000 crore), Sidbi (Rs 15000 crore) and National Housing Bank (Rs 10000 crore), declaring that moratorium granted on existing loans by banks will mean that they would not fall under the 90-day non-performing asset norm, bringing down the liquidity cover ratio requirement of banks from 100% to 80%, and asking banks not to make any further dividend payouts until the situation improves.

While these are all good measures that will bring additional liquidity in the market and ease the situation a bit, the economy is now tottering on the edge and these macro measures are not going to help much. It is true that reducing the reverse repo rate will make it unattractive for the banks to park their money with the RBI and they will try to lend it to businesses. But since businesses are facing tough times, new projects or additions to existing projects will not happen in a hurry. Most firms will borrow now for only working capital needs as devoid of cash, many are finding it difficult to make payments for salaries, rents and other monthly expenses.

There is no doubt that these measures will ease the pressure on the financial system, but liquidity by itself is not the panacea for the troubles being faced by companies or individuals now. As the pandemic shows no signs of abating, the RBI would do well to extend the moratorium period from 90 days to 180 days. It should also direct banks not to charge usurious rates of interest for the delay as the situation is extraordinary and beyond the control of anyone. It should be recognized that this is not willful default but one that is forced by circumstances. Despite recent measures to restart some economic activity, the economy as a whole is not likely to return to any kind of normalcy before December, if not later. The RBI should keep that in mind when it announces any further relief measures.