Sudhir Kumar Rakesh
IAS, Retd.
Patna : The overall scenario developing as a result of the CORONA crisis needs to be responded to quickly if the health of the global economy is to be restored with speed. It is heartening to see that Indian policy maker are taking appropriate policy decisions in a nimble footed manner.
Two examples would suffice to prove this point. First was the set of policy First was the set of policy decisions announced by RBI Governor Shaktikanta Das on April 17, 2020. Some of the important points are as follows : Ø The RBI maintained the policy repo rate unchanged at 4.4 per cent and the marginal standing facility rate and the Bank rate unchanged at 4.65 per cent.
Ø However, the reverse repo rate was reduced to 3.75 per cent (a reduction of 25bps) from the earlier 4 percent. This would result in making the parking of excess funds by the commercial banks with RBI less attractive and nudge them to lend more.
Ø In order to channel liquidity to small and mid-sized corporates, including non-banking financial companies (NBFCs) and micro finance institutions (MFIs), that have been impacted by COVID-19 disruptions, it has been decided to conduct Targeted Long-Term Repo Operations (TLTRO) 2.0 at the policy repo rate for tenors up to three years for a total amount of up to ₹50,000 crore, to begin with, in tranches of appropriate sizes.
Ø The funds availed under TLTRO 2.0 shall be deployed in investment grade bonds, commercial paper (CPs) and non-convertible debentures (NCDs) of Non-Banking Financial Companies (NBFCs).
Ø Special refinance facilities provided for NABARD, SIDBI and NHB in order to enable them to meet sectoral needs for credit. NABARD will be getting Rs 25,000 crore for refinancing RRBs, Co-Operative Banks, and MFIs. SIDBI to be given Rs 15,000 crore for on-lending and refinancing. NHB to be given Rs 10,000 crore for supporting housing finance companies.
Ø States to get a 30 percent increase in the ways and means advance limit in order to be able to undertake COVID-19 containment and mitigation efforts.
Ø Liquidity Coverage Ratio requirement for Banks reduced to 80 percent from the earlier 100 percent.
Ø At the same time, Banks have been asked to maintain higher provision of 10 percent on all standstill accounts.
Ø Banks asked not to make any dividend pay out for 2019-20 without prior approval. The appears to have been done in order to let Banks use their reserves and surpluses for meeting the CORONA induced crisis in the entire system. Significant change also be made in the timeline for resolution under IBC, extending it by another 90 days over and above the existing 210 days.
Ø The RBI Governor also informed the nation that India’s foreign exchange reserves have gone up from $474.66 billion for week ending April 3 to $476.5 billion for the week ending April 10, 2020. This showed an increase of nearly $2 billion.
Ø The Governor further made it very clear that the RBI was quite alive to the emerging situation and would take appropriate steps whenever these were required.
These announcements by the RBI are quite timely and have taken care of many concerns being voiced by different sectors of the Indian economy-especially the NBFCs, the Housing sector and small loan providers to the rural population, mainly the RRBs and the MFIs. The needs of MSMEs has also been addressed to some extent by providing additional refinance window to SIDBI.
The announcements have been greeted with a lot of enthusiasm by the economy. Hopes have risen and an enhanced amount of faith in the ability of the RBI is being witnessed.
The second example is the speed with which the Central Government has brought new FDI rules barring automatic investments by neighbouring countries in the middle of the ongoing CORONA crisis. The aim of this amendment to the Foreign Direct Investment (FDI) Rules is to discourage sneaking investments into Indian companies by neighbours looking to take undue advantage of the depressed prices of Indian equities during the current crisis. The amendment provides that FDI investments into Indian companies will now require approval of the Central Government and would be applicable to all countries that share a land border with India.
The import and the intent of this notification may not be lost on people with knowledge of the fact that the Peoples’ Bank of China had recently acquired a large chunk of shares of HDFC Ltd.
These two examples of the alacrity with which Indian Policy Makers are taking decisive action augurs well for the current as well as future health of the Indian economy.
I have said earlier and I repeat today: please have faith in the capability of the Indian Government and our policy makers. They are second to none in the world. We have to learn to trust them. We may listen to foreign experts, we may also respect their views, but ultimately it is the Indian think tank which is going to deliver for us. India is surely and decisively on its way to becoming an economic powerhouse!