RBI Governor Discusses Post-Lockdown Credit Flow

Last Saturday, on 2 May 2020, RBI Governor, Sakhti kanta Das had a meeting with the heads of various banks. Together they reviewed the current economic situation and the implementation of various measures that are being announced to reduce the financial stress on the Indian economy.

The meeting took place in two separate sessions. At the meeting there were managing directors and CEOs of the biggest banks of the country, both public and private. 

One of the biggest points discussed was the current economic state and the financial sector’s stability.

Topics discussed also include credit flows to the various industry sectors, such as liquidity to NBFCs, housing finance companies, microfinance institutions, mutual funds etc, and credit flows after the pandemic. After the pandemic, special focus will be on credit flows to MSMEs, and providing them with working capital.

Items reviews included the implementation of the moratorium and the repayment of loan installments, as announced by the RBI earlier.

It needs to be said there here that earlier this week the Supreme Court of India directed the Reserve Bank to ensure the implementation of the moratorium facility by banks around the country. This is to ensure that all borrowers are being benefited by the facility.

It was discussed that it is essential to monitor the overseas branches of banks around the world.

Several steps were announced by the RBI to diminish the pressure faced by lenders, borrows and others. The RBI promises to take even more initiatives as required in the future to decrease the economic pressure on the economy and on the people in general. It understands that the greatest pressure is on the consumers and the common man.

The RBI has already taken several steps to ensure this.

1. It has introduced a sum total of funds worth 3.2% of the GDP into the economy since February to meet the liquidity problem, ever since February 2020.

2.  The central bank encouraged banks to continue lending by cutting the key policy rate by 75 basis points till it reached an 11-year low of 4.4%. Additionally, the reverse repurchase rate was slashed as well, which is a tool used for controlling the money supply. It was slashed to 3.75% and is done to encourage banks to use the surplus funds for lending.

3. The reverse repo rate was slashed to discourage banks from hoarding cash with the RBI itself and to use them for lending instead.

That the Indian economy seems to be headed for a quarterly contraction, which is rare, during the April-June period due to the halt of many economic activities, was discussed as well.

Earlier, the government of India provided a total of Rs. 1.7 lakh crore package of free cash doles and foodgrains for the poor, who are most at risk during this time.