Apex industry body FICCI has welcomed the massive dose of monetary stimulus announced by the Reserve Bank of India, while urging banks to pass on the full benefits to businesses without delay. Given the fragile condition of the economy amid coronavirus outbreak, the rate cut announcement by the central bank would help lift the spirit of the financial markets, it said.
Lauding the measures announced by the RBI Governor Shaktikanta Das, FICCI President, Sangita Reddy, said, "This has been a very comprehensive set of announcements made by RBI and highlights action in all the key areas that were expected. The current situation in the economy and financial markets is extremely fragile and it required a massive dose of monetary stimulus to be injected at the earliest. The RBI has done just that. This should help lift spirit of economy."
In the seventh bi-monthly policy meeting, the RBI on Friday cut repo rate by 75 basis points (bps), reverse repo rate by 90 bps, and cash reserve ratio (CRR) by 100 bps to mitigate the impact of coronavirus pandemic on the economy. Besides, all banks, lending institutions have been given authority to allow a three-month moratorium on all loans. The policy measures are likely to inject Rs 3.74 lakh crore liquidity in the system and will provide big stimulus for banks to lend aggressively.
"The sizable reduction in the repo rate by 75 basis points coupled with a reduction in the reverse repo rate by 90 basis points should enable lowering of lending rates as well as encourage banks to move money into the productive sectors of the economy through on-lending and not look at parking money with the RBI," Reddy said.
By announcing targeted long term repo operations, reducing the CRR and permitting banks to draw a larger amount under the marginal standing facility window of the RBI, the central bank has ensured that the dislocations in the financial markets get addressed to a great extent, she said.
A massive liquidity, 3.2 per cent of the GDP, has been added through these measures, she added.
"Our companies today need liquidity for survival. If the money released into the system reaches the corporates through greater lending, investments in commercial paper, non-convertible debentures and corporate bonds, we will be able to see through this difficult phase whose different facets are still getting uncovered. The decision of the RBI to allow banks to hold their investments in these corporate instruments till maturity should provide a lot of comfort to banks as the current market conditions are quite volatile," FICCI President said.
Besides a deep cut in the lending rate and providing liquidity support, the RBI has also offered succour by way of allowing a moratorium on payment of installments of term loans and deferring payment of interest rates on working capital loans for a period of 3 months, she said. None of these measures would call of asset reclassification at the end of financial institutions and would also have no bearing on the default credit history of the borrowers.
"The decision to put a temporary stop on payment of term loans and interest rates on working capital loans will provide relief to the companies as their cash flows have been completely disrupted. We hope that RBI will do a continuous review of the situation as it evolves and will revisit the announcements for any further extension and relaxations that may be required in this period of uncertainty. We look forward to all relaxations being transmitted by banks in full and without delay," said Reddy.
The industry body said that it would continue to update the RBI and the Finance Ministry on the concerns being faced by Indian industry and hopes to see all support being rendered by the central bank for keeping Indian industry and economy moving.