Opposition party Indian National Congress has said that Reserve Bank of India (RBI)'s attempt to infuse liquidity in the banking system will not revive slump in demand.
Party spokespersons Gourav Vallabh and Randeep Singh Surjewala said RBI's "COVID-19 stimulus 2.0 package has missed the bus" as 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," they opined. In a statement, the leaders said RBI action is also confusing as it wants 'the Banks to continue maintaining capital, wants a safety net in the form of additional provisions, but doesn't state in as many words that the situation doesn't warrant increased lending, while most of the actions of RBI indicates the same'. They also pointed out that the NBFC industry has been seeking relaxation of NPA classification as the pandemic would hit their target audience i.e, the MSME sector and the realty sector.
"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, their ability to repay -- considering the situation -- will not push them to lend further and they would be more focused on ensuring that collections happen," the leaders said. They pointed out that RBI has put the onus on NBFCs by allowing them to relax the classification of NPAs for their customers without providing clarity on the regulatory classification of NPAs.
They welcomed the permission given to certain NBFCs to extend loan terms to the realty industry customers but expressed doubt if the realty sector that is likely to be hit the most, will be benefited. In the same manner, the leaders welcomed RBI decision to provide liquidity to the states, but called it misleading because 'these are short term loans and whether the states can repay these loans is a big question mark' as the states are not in a position to generate revenue due to complete standstill situation of the economy.