Taking a step forward, a fresh lease of life via Resolution Framework 2.0 for entities having aggregate exposure of less than Rs 25 lakh and who had not availed any of the restructuring frameworks earlier was also announced. In effect, and rightly so, the RBI
has categorically refrained from fresh moratoriums and relied on one-time restructuring.
In an adverse economic environment and its amplified impact on businesses across sectors, to buffer banks’ balance sheets and enable capital conservation, RBI permitted 100 per cent of floating provisions / countercyclical provisioning buffer (as on December 31, 2020) for making specific provisions for NPAs with prior approval of their Boards.
Amidst a second wave of infections that is yet to peak, India is staring at an unprecedented economic state. Our Daily Activity and Recovery Tracker (DART) Index, capturing early signals and turning points, posted an eighth consecutive weekly decline for the week ending May 2. The slowdown has been pronounced in the preceding three readings led by consumption-based indicators, pegging a sequential loss in economic activity to the tune of 15-20 per cent in April 2021. While we expect a likely peaking of COVID wave in May-21 but localised lockdowns are expected to remain in place through the month, with gradual unlocking only beginning from Jun-21 onwards. This would mean a sequential setback to growth in Q1 FY22, dominated by demand deferment as opposed to Q1 FY21 which saw massive supply disruptions. Basis the current scenario and our assumptions outlined above; we recently revised downwards (by 150 bps) our FY22 GDP growth estimate to 10 per cent.
Indeed, RBI’s response function was proactive, loaded and well timed. It truly exemplifies the popular adage of “A stitch in time saves nine”. Akin to last year (at the time of outbreak of the pandemic), the RBI has displayed its agility to rise to the needs of the economy. The evident downside risks to growth will mean that the central bank maintains an accommodative policy stance while remaining nimble footed on regulatory relaxations in FY22.
Yuvika Singhal and Vivek Kumar are with QuantEco Research. Views are their own.
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.