Category: Banking & Finance

Das: These are extraordinary times. This is an extraordinary situation we are dealing with. And there are several currents and cross-currents. There are many conflicting objectives which the RBI has to manage. A central bank at any point of time is required to manage conflicting requirements of the economy, and more so in times like this.…The policy action of the RBI has to be nuanced. It cannot be unidirectional. It cannot be just black and white. It has to be a nuanced policy response. And that is precisely what we have attempted to do.

Patra: On the inflation front, I think, if we all kind of step back a little bit and look at it in a historical perspective, things will get a little more clearer. For instance, between 2016 to 2020, we kept inflation at 4 per cent through a combination of various measures. In FY21, we were hit by the pandemic and it was an extraordinary situation in which margins and taxes were raised, and there were supply disruptions. So, inflation went up to 6.2 per cent on an average. Now, we are looking at an average of 5.7 per cent, which, I would say, from a historical perspective, is an improvement over the previous year.

So, the path of inflation is being calibrated downwards on the way to reach 4 per cent. So, from 6.20 per cent in a pandemic year to 5.7 per cent in the year following the pandemic and thereafter 4 per cent, is the right way to go….what we are doing is spreading disinflation over a period of two-three years so that the losses of output are minimised…

Rabi Sankar: We are evaluating the scope, the technology, the distribution mechanism, etc.… So, it will be difficult to pin a date on it. We should be able to come out with a model in the near future, probably by the end of this year.

Patra: The approach to inflation is not one of a cold turkey approach, where you slam the economy till it goes limp without inflation. No, that is not the way it is. The flexible targeting framework allows you to secure disinflation over a period of time rather than a point of time.

And that has been our approach. Since inflation has gone to a pandemic high of 6-plus per cent, not a demand-supply high, it is important to bring that down, not immediately but over a period of time. And that is what the MPC is striving to do – to set a glide path for inflation that will eventually bring it back to target to the extent that there are factors that will definitely go away like we are already seeing prices of pulses and edible oil declining. Cereals prices going into deflation.

So, all these will now work into inflation to steady that process rather than have a jerky inflation.

Rao: As far as the current account issue is concerned, let me reiterate that there is no blanket ban on opening of these accounts. In fact, we are following a kind of graded approach – there are no restrictions on opening of current accounts if the exposure of the borrowers is less than ₹5 crore and if they have not availed of CC/OD facilities from any bank; and if the exposure is between ₹5 crore to ₹50 crore, there are no restrictions on opening of current accounts by such borrowers, but these accounts can only be used for collection purposes.

As far as CC/OD is concerned, technology today enables anywhere, anytime banking, so there is no likelihood of any disruption as far as opening of current accounts is concerned. And the proposal which we have actually tried to implement ensures better discipline on the borrowers.

And now taking into consideration some of the concerns expressed by the banks, we have actually extended the timeline till October 31 (for implementing the circular). And, we will be addressing many of these issues in consultation with the IBA and Banks so that any residual issues can be sorted out.

Jain: With regard to any kind of stress in retail and MSME segment, we are closely monitoring. There is visibility of little bit stress from the past data, but it is not alarming. We are constantly engaged with the regulated entities, particularly the outlier banks and NBFCs, and we also conduct stress tests. In the past also…we advised all regulated entities to improve their provisions and they responded. The results of all these banks, if you see pre-Covid-2020 and now March 2021, there is an overall improvement in all parameters, including CAR, reduction in gross and net NPAs and slippages ratio. There is an improvement in PCR and improvement in profitability. So, the sector is better positioned today than what it was before the onset of Covid.

On private virtual currencies, I have said it previously also that the RBI has major concerns, and we have conveyed it to the government. The matter is with the government and it will take the matter forward.

The Reserve Bank of India (RBI) has extended the on-tap targeted Long Term Repo Operations (TLTROs) scheme by three months till December 31.

This is in view of the nascent and fragile economic recovery.

The RBI had, on October 9, 2020, first announced that it would conduct on tap TLTRO with tenors of up to three years for a total amount of up to ₹1-lakh crore at a floating rate linked to the policy repo rate. The scheme was available up to March 31, 2021. But it was later extended.

Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by the entities in five specific sectors. This scheme was further extended to stressed sectors identified by the Kamath Committee in December 2020 and bank lending to NBFCs in February 2021.

The liquidity availed under the scheme can also be used to extend bank loans and advances to these sectors.

Investments made by banks under this facility is classified as held to maturity (HTM), even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio.

All exposures under this facility will also be exempted from reckoning under the large exposure framework (LEF).

As per RBI data, under on-tap TLTRO, banks had availed ₹5,000 crore on March 22, 2021, and ₹320 crore on June 14, 2021.

Dinesh Khara, Chairman, SBI said, “The RBI policy is pragmatic and strikes a fine balance between stance and strategy. While the policy stance continues to be accommodative to continuously support growth, a strategy of careful recalibration of liquidity management is clearly indicated with the roll out of VRRR.

The policy has also nudged banks to shift to an alternate reference rate with the discontinuation of LIBOR. The extension of the on-tap TLTRO scheme and the deferral of the deadline for meeting the operational parameters for stressed entities will help corporates navigate through the pandemic with a degree of certainty.”

Rajni Thakur, Chief Economist, RBL Bank said, “MPC announcements were pretty much on expected lines with key rates held constant and upward revision of inflation forecasts for the current fiscal year.

Policy bias in favour of nurturing growth continues and there was a strong denial of any urgency to scale back monetary support on account of higher inflation or potential global normalisation.

While enhanced VRRR quantum and one voice of dissent can be seen by market as mildly dovish, in all likelihood, RBI has kept its options open to support growth should the third wave disrupt nascent momentum or to use monetary tools to begin normalisation if growth -inflation dynamics start to get complicated.”

On similar lines, Siddhartha Sanyal, Chief Economist and Head – Research, Bandhan Bank said, “While the status quo on rates with a 6-0 voting and continued “accommodative” stance were on expected lines, the split voting as regards the policy stance was a modest surprise. Still, the overall tone of policy continued to focus clearly on supporting growth recovery.”

“Given higher global commodity prices, sticky food inflation and rise in domestic fuel prices, inflation may stay higher than for the RBI’s comfort. However, with the tentative and uneven nature of recovery, one expects the MPC to continue prioritizing supporting growth in the coming months.”

Indranil Pan, Chief Economist – YES BANK said, “RBI has attempted and managed to balance the contradicting objectives of managing inflation expectations while also communicating the need for sustained policy accommodation.

Even as the inflation forecasts for the current FY have been raised, the communication continues to be that the hump in inflation is supply-led and thus ‘transitory’ wherein the demand side push for inflation is almost absent. This is the reason for RBI to have been able to see-through the current high inflation levels.

RBI continues to highlight that any pre-emptive tightening can kill the nascent and hesitant recovery that is taking shape. In cognizance with an extremely uncertain growth climate, we think that the RBI will maintain its accommodative policy and not move on any form of tightening – be it on the rates side or on the liquidity side – till the end of the current FY.”

While A. K. Das, Managing Director & CEO, Bank of India has a positive outlook. He said, “Continued accommodative stance of RBI is expected to catalyze growth in real segments in a strong, broad based and sustained manner”.