The Opposition Congress said that the Reserve Bank of India (RBI)’s prodding to the banks to lend will not yield much result when the banking system is grappling with fear and panic. The party asked the RBI to focus on creating demand.

Congress’ media in-charge Randeep Singh Surjewala said that banks and financial institutions are not facing the problem of money, but risk appetite. “What did not happen during the 2017-2019 period of economic slowdown is being attempted during the pandemic situation. When the demand for goods and services have crumbled and likely to remain benign more on account of fear than on account of lack of opportunities, then instead of focussing on how to fuel the economy with demand, the RBI is focussing on increasing liquidity and cost of funds benefits,” he said.

He said the Central bank has missed regulatory relaxation in NPA classification and onus is now on institutions to relax their stance. “RBI not providing growth guidance is a clear indication of difficult times which call for RBI knocking the doors of the government for fiscal action rather than being prodded for monetary action,” he said.

He said the RBI in its Covid-19 stimulus 2.0 package has again missed the bus in the need to fuel demand. “Instead of addressing demand, which typically involves putting money into the hands of the people, RBI has decided to increase liquidity of the banks, to lend more at a lower interest rate. Unfortunately, in a system that is grappling with fear, this type of prodding to lend will not yield much result,” he said.

NBFC industry

He said the NBFC industry has been seeking relaxation of NPA classification as they sense both the negative trend in the economy as well as the pandemic would hit their target audience i.e., the MSME sector, the realty sector. He said, “This will create huge asset liability mismatches and push many of the smaller NBFCs to the brink. Although the RBI liquidity measures may hopefully help banks lend to the NBFCs, but their ability to repay considering the situation will not push them to lend further and they would be more focussed on ensuring that collections happen.”

He added, “Instead the RBI has put the onus on the NBFCs by allowing them to relax the classification of NPAs for their customers and not provided clarity on the regulatory classification of NPAs. Allowing certain NBFCs to extend loan terms to the realty industry customers is a welcome sign but with the sector likely to be hit the most, whether this will help is a big question,” he added. He said that the States are not in a position to generate revenue and pay back the loans due to the complete stand still situation which the lockdown has pushed the economy into.

Published on April 17, 2020