After reducing the repo price by 115 foundation factors since the outbreak of the Covid-19 pandemic, the Monetary Policy Committee (MPC) unanimously determined to hit the pause button resulting from the uncertainty surrounding the inflation outlook.

The Reserve Bank of India, nevertheless, introduced a slew of measures geared toward enhancing liquidity for micro enterprises and assuaging the stress on the stability sheet of corporations resulting from the pandemic.

“Given the uncertainty surrounding the inflation outlook and extremely weak state of the economy in the midst of an unprecedented shock from the ongoing pandemic, the MPC decided to keep the policy rate on hold, while remaining watchful for a durable reduction in inflation to use available space to support the revival of the economy,” mentioned RBI Governor Shaktikanta Das.

The MPC expects the headline inflation to stay elevated in the second quarter (July-September) of 2020-21, but sees it easing in the second half :(October 2020 to March 2021), aided by beneficial base results, he added.

The repo price (the rate of interest at which the RBI offers liquidity to banks to beat short-term mismatches), thus, continues to stay at four per cent. This price has been reduce twice by a cumulative 115 foundation factors since March in view of the deteriorating development outlook for the financial system.

Relief to debtors, banks

The central financial institution’s large ticket announcement at present was allowinglenders to implement a one-time mortgage restructuring plan with none change in possession, whereas classifying such exposures as commonplace belongings. This is predicted to supply reduction to debtors, whose money flows have been strained resulting from the affect of the pandemic, and stem the rise in unhealthy loans for the lenders.

The RBI is organising a panel headed by KV Kamath to arrange pointers for this facility.

‘Industry encouraged’

Uday Kotak, President of CII and MD and CEO of Kotak Mahindra Bank, mentioned, “Industry is encouraged by the RBI’s decision to provide a window under the Prudential Framework to enable lenders to implement a resolution plan in respect of their corporate exposures, with the necessary caveats in place. It is to be hoped that the expert committee led by KV Kamath will come out with norms that will enable banks to judiciously monitor businesses while enforcing timely payments as per the restructuring plan. Sectors that are highly stressed due to the impact of Covid are in dire need of such restructuring.”

 

SBI chairman Rajnish Kumar mentioned the RBI has addressed the want to supply some type of restructuring facility for traditional accounts which might be going through problem in debt restructuring. “We welcome the fact that a new Resolution Framework for Covid-19-related stress facility has been extended to large corporates, SMEs and personal loans with necessary safeguards in each segment,” he mentioned.

Negative GDP development

The six-member MPC famous that in an atmosphere of unprecedented stress, supporting restoration of the financial system assumes primacy in the conduct of financial coverage.

According to MPC’s estimates, the actual GDP development in the first half of the 12 months will stay in the contraction zone. For the 12 months 2020-21 as a complete, actual GDP development can be anticipated to be in damaging.

“An early containment of the Covid-19 pandemic may impart an upside to the outlook. A more protracted spread of the pandemic, deviations from the forecast of a normal monsoon and global financial market volatility are the key downside risks,” the Governor mentioned.

More gold mortgage

In different key strikes, the RBI additionally enhanced the quantity of mortgage that banks may give towards gold ornaments and jewelry for non-agricultural functions from 75 per cent of the worth of gold pledged to 90 per cent.

The RBI additionally introduced ₹10,000 crore of extra liquidity to Nabard and the National Housing Bank to assist NBFCs and the housing sector tide over the liquidity disaster.