Policies to allay Covid stress should balance depositor and borrower interests: RBI Governor


    As per government data, GDP during the April-June quarter contracted 23.9 per cent on account of the strict lockdown imposed by the government towards end of March to check the spread of coronavirus infections.

    Indian economic recovery likely to be gradual: RBI Guv Shaktikanta Das


    The Reserve Bank of India's policies to counter the Covid-19 related stress were aimed at balancing the interests of both the depositors as well as borrowers and prevent the recurrence of financial instability like it happened a few years ago when the banks piled up bad loans because of imprudent decisions, Governor Shaktikanta Das told an industry conference organised by FICCI.

    “We don’t want to be back in the situation that was five years ago, when NPAs of banks had risen very steeply, but we are also mindful of the fact that COVID has negatively impacted a large number of businesses, they also need relief,” Das said on Wednesday. “Businesses that were otherwise viable have been facing genuine cash flow issues. Emphasis will be to assist such companies so that they return to normalcy.”

    Das said that the two year restructuring window allowed for companies impacted due to the pandemic was a fine balancing act to maintain the interest of all key stakeholders.

    “The primary concern of any bank should be protection of depositors interest because ultimately it is the depositors money, there are crores of depositors while borrowers could be in lakhs,” the governor said. “Now, there are small depositors, middle class people, retired persons who depend on deposit income, their interest has be to protected.”

    Several industry associations including real estate and hotels have approached the Supreme Court seeking further relaxation’s after the six month moratorium that ended in August. While the apex court has said that no company would be declared as bad loan until further orders, the government and the RBI have held that borrowers should not be compensated at the cost of the depositors.

    “The aspect of financial stability of the banking sector has to be kept in mind because banking has an important role for economic development in an emerging market economy like India,” Das said. “Both these sides have to be balanced, revival of such businesses will also ensure that NPA levels are kept low and there will be a quicker economic recovery.”

    On claims by industry that low interest rates was only available to top rated borrowers, Das said while a higher risk premia would be attached to low rated companies, high liquidity in the system has brought down rates for all.

    “In all categories of borrowers the spreads have come down in the last few months, naturally in the reduction in interest rates for a AAA rated company is more as compared to BBB, this is due to the risk assessment attached to the business,” he said.

    Commenting over the disparity of the loan-to-value ratios allowed to banks versus non-bank lenders, the governor stated that it was being done in view of business concentration risks, as many NBFCs primarily were only in the business of gold lending and any price fluctuation could be detrimental to their financial stability.
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    33 Comments on this Story

    Reykam Jayasurya14 days ago
    The policy makers should consider the PANDEMIC SITUATION practically looking into the facts. The economic indicators are contracted, revenues of the businesses nose dived resulting in job losses, deep cuts for the salaried classes and finally their inability to honor repayment commitments. Of course the immediate relief measure of extension of moratorium till August 31,2020 has helped millions during this period. However, indecisions using logic and other factors would not save the millions whose survival is a question during increasing PANDEMIC and revenue losses in business and salaries. It is pertinent to RBI to realize that the a comprehensive package of restructuring is the only solution. which can practically work. The restructuring must be done taking in to account the business or the individuals, current reduced cash flows or no cash flows due to the pandemic and help the borrowers by extension of further moratorium on principal till March 2021, while interest is serviced. 10% of the principal interest during FY 22 ; 40% of the principal interest during FY 23 and the balance amount of principal interest during FY 24. Thus this ballooning repayment schedule will help the businesses and the individuals to recast there cash flows in line with the gradual improvement of the economy while the country comes out of the Pandemic. Let us not talk other irrelevant issues except suggestions to share the pain by all Indian brethren.
    Shaleen Nath14 days ago
    People know little about Economics and Business... It is profitable both ways when prices fall and when they increase too, though money (supply) is a must, either through external devaluation or internal devaluation... Higher inflation or ext. devaluation increase spending and lower inflation or internal devaluation too... Higher inflation means supply side would improve coz higher prices increase supply, wages and profits and lower prices means demand would increase, wages and profits... But money supply is very important... If you have to increase demand you need money, if you have to increase supply you need money, too...
    Mahalakshmi Balasubramanian14 days ago
    The RBI & the IBA must consider the following measures . 1) Extension of Moratorium for six more months . 2) Restructuring of Loans by just one year from the end of the Moratorium Period . 3) Interest waived for the first six moratorium only . 4) Interest at 50 % of agreed rates of loans for the next 6 months of Moratorium period . 5) No Company must be allowed to raise the already high vulgar salaries of Top-level Employees & Promoters for the next 3 years . 6) Annual Increments of All Employees must be kept on hold for full two years . " Extraordinary Pandemic situation needs extraordinary measures , so that the pain is shared by All . It is futile to fix blame on RBI/ Banks/ Govt. Policies / Individual-greed in all sectors , all of which have contributed to the mess , especially the corrupt mentality fostered by the Parties in Power in the last 20 years , before 2014 ! If those Parties had been allowed to continue due to dynastic democratic tendencies , India , by now would have been worse than Indonesia or like other countries in Africa . The BJP - govt. also must mend their ways & have a policy review of all measures ushered in so far. The Religious touch & Religion -related measures must be eschewed from now on . The ED/ TAX Dept etc must constantly raid the Loot- sectors like Private Colleges & Private Hospitals . All Parties who do business in the names of Caste / Language must be ruthlessly banned . Jai Hind !!
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