RBI Policy Decisions Live: MPC Leaves Rates Unchanged; RBI Allows One-Time Restructuring Of Corporate Loans
RBI Governor Shaktikanta Das InterviewShaktikanta Das, governor of the Reserve Bank of India (RBI). (Photographer: Kanishka Sonthalia/Bloomberg )

RBI Policy Decisions Live: MPC Leaves Rates Unchanged; RBI Allows One-Time Restructuring Of Corporate Loans

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Abizer Diwanji, EY India

The one-time restructuring of assets in stress because od the Covid-19 pandemic was the need of the hour, according to Abizer Diwanji, Partner & National Leader, Financial Services EY India.

  • This being done was the need of the hour, not with the intent of hiding what the stress on the banking system is because most banks and NBFCs have announced their capital raises and the government will support the PSU banks in their capital raises.
  • What’s important is, if a one-time restructuring is done without classification, the system there is able to support the revival of a standard company much better than an NPA company.
  • I am of the view that they should not have had this cut off because there are companies which are impacted because of Covid and second, there are companies whose revivals are impacted because of Covid.
  • The circular says that people who are likely to turn NPA because of Covid or require a restructuring because of Covid are exempt but my view is that every company is impacted of Covid.
  • I think the sectoral benchmark is a brilliant idea. It will keep all the companies in check.
  • I think that if you have an oversight of every plan above Rs 1,500 crores of total debt, that may create some bottlenecks and I don’t know how the committee will then function.

Watch the full conversation here:

Experts React To RBI's Announcements

Jaideep Iyer, RBL Bank

One-time restructuring for Covid-19 stressed accounts a step in the right direction, says RBL Bank'shead of strategy Jaideep Iyer.

  • Good companies with no cash flow for six months cannot be penalised.
  • Appropriate guidelines important to prevent the repeat of mistakes made in 2009.
  • Banks will restructure accounts only for businesses directly impacted by Covid-19.
  • It will not go like the last time when all and sundry got restructured

Jayesh Mehta, Bank of America

An interest rate cut does not make sense right now, says Bank of America’s Jayesh Mehta.

  • Inflation is going to be higher due to supply disruptions, as forecast by RBI.
  • MPC will have policy space when inflation softens in H2 FY21.
  • The most important need of the hour is restructuring, which they’ve provided for.
  • Even with the best of safeguards there will always be some room for mischief.

Saugata Bhattacharya, Axis Bank

Repo rate already near India’s effective lower bound, says Axis Bank’s Chief Economist Saugata Bhattacharya.

  • CPI inflation will be 6% or above for the next two months, at least.
  • It will be difficult for an inflation targeting-MPC to cut rates in the next policy.
  • Room to use conventional monetary policy tools is beginning to compress.
  • See room for another 15-25 basis points rate cut, not much more than that.

Also read: MPC Meet: Repo, Reverse Repo Rate Left Unchanged

Parting Remark

"The world is bracing up for a second wave as it cautiously opens up. We shall remain alert and watchful and collectively do whatever is necessary to revive the economy and preserve financial stability,” said RBI Governor Das.

Incentive-Based Framework To Address Regional Disparities In Credit Flow

An incentive framework is being put in place for banks to address regional disparities in the flow of priority sector credit, says RBI governor.

  • Most PSL credit gets concentrated in certain areas
  • Higher weightage will be assigned for credit to identified districts with lower credit flow
  • Lower weightage will be assigned to districts with higher credit flow
  • Priority sector lending status is also being given to startups, says RBI governor.
  • Limits for renewable energy including solar power and biogas plants are also being increased.
  • Introduction of automated mechanism in e-Kuber system to provide banks more flexibility and discretion in managing liquidity and cash reserve requirements
  • Putting in place safeguards for borrowers, with multiple borrower accounts, availing credit facilities from multiple banks

Other Announcements

  • RBI to set up innovation hub in India
  • Introducing mechanism of positive pay for all cheques above Rs 50,000
  • Scheme of offload retail payments using cards and mobile devices and a system of online dispute resolution mechanism or digital payments will also be introduced

RBI Raises Loan-To-Value Limit For Gold Loans.

  • LTV for loans sanctioned by banks against pledge of gold for non-agri purposes increased to 90% from 75 %
  • Relaxation available till March 31, 2021
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