Bikky Khosla | 09 Aug, 2019
Contrary to expectations, the RBI, in its Monetary
Policy Committee meet last week, retained the repo rate -- or
short-term lending rate for commercial banks at 4 percent. The central bank had
already cut repo rate by 115 basis points in the last seven months, but given
that the Indian economy is still struggling the effects of the COVID-19 crisis
and lockdowns taken to limit the spread of the virus, economists and industrialists
expected another dose of repo rate cut. But it hasn’t happened.
But the MPC announced a major
restructuring package for stressed MSME loans which banks and NBFCs have been
strongly pitching for. It extended a scheme whereby stressed MSME borrowers
will become eligible for restructuring their debt, provided their accounts with
lenders were classified as 'standard' as on March 1, 2020. In other words, the
existing loans to MSMEs classified as 'standard' will now be re-structured
without a downgrade in the asset classification.
In another welcome move, the central
bank has given priority sector lending status to start-ups. This will
definitely help our start-ups. Under PSL, RBI directs banks to provide a
specified portion of the bank lending to few specific sectors, and now with PSL
status given to start-ups, it can be expected that it will be easier for
thousands of start-ups functioning in different fields to access timely and
adequate bank credit.
Meanwhile, questions are there why RBI
didn’t cut repo rates. Latest official data shows that retail inflation rose in
June to 6.09 percent from 5.84 percent in March. This is more than the RBI’s medium-term
target range of 2-6 percent. Second, despite the 115 bps rate cut in last seven
months, transmission by banks to customers is still to kick in fully. Also,
global economic activity is still fragile and real GDP growth is still expected
to remain in the negative. This is probably why the RBI pressed the pause
button as of now.
I invite your opinions.