Hence, they expect additional measures from the Centre in the next few days. Besides, they are hoping for another 90 to 100 basis points cut in interest rates
in the remaining fiscal 2021. “These RBI
measures will help large corporates and banks to survive… but it won’t help economic growth to revive,” said the head of an infrastructure company.
Venu Srinivasan, chairman of TVS Motor Company, said RBI’s measures are a part of the continued efforts to stimulate economic activity and protect jobs.
“The LTRO (long-term repo operation) for non-banking financial companies (NBFCs) and micro-lenders is a good tool to ease liquidity without tinkering with policy rates. Additional liquidity of Rs 50,000 crore is a substantial amount,” he said. Under LTRO, the RBI
provides longer term (up to 3 years) at the prevailing rates.
The increased liquidity, coupled with a cut in the reverse repo rate, will incentivise banks to actively lend to those most in need of funds and make it affordable for businesses to borrow. It will address their working capital needs as the country opens, Srinivasan added.
Sangita Reddy, president, Federation of Indian Chambers of Commerce & Industry (FICCI), said requirements of the economy, of course, are much larger and we look forward to the RBI
coming out with more such measures. “The economy and industry need a heavy dose of liquidity infusion. The financial intermediaries need confidence that the steps they take to support industry in this hour of crisis will be viewed leniently and not attract regulatory actions in terms of asset reclassification and attended provisioning,” she said.
Analysts said the RBI measures are a recognition of the tightening financial conditions of small and mid-sized corporates, NBFCs and MFIs (micro finance institutions). They are largely aimed at improving availability and access to funds by these segments. Although, the targeted LTRO is a positive for the corporate bond markets, it needs to be seen if banks would invest in the lower-rated investment-category bonds. Banks would continue to opt for higher-rated instruments and more targeted LTRO can be expected in the coming days.
The top executives said the reduction in reverse repo rate is to prompt banks to deploy their surplus liquidity by extending credit and making investments to various segments of the economy. The liquidity surplus in the banking system is currently estimated to be around Rs 4.9 trillion, according to a CARE study.
“As of now, banks are lending only to top corporates. We have to wait and watch whether the banks will lend to mid-sized and smaller companies. Bankers have no incentives to give loans and are, in fact, worried that they will be hauled up five years down the line. That fear must go,” said the head of an infrastructure development company.