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Course of economy altered by slow retreat of 2nd Covid-19 wave: RBI

Course of economy altered by slow retreat of 2nd Covid-19 wave: RBI

RBI says aggregate demand conditions are buoyed by the release of pent-up demand post unlocking of the economy. Supply situation also improving with monsoon catching up to its normal levels

The RBI report says Small Finance Banks have relatively high credit deposit ratios and that most are displaying healthy profitability The RBI report says Small Finance Banks have relatively high credit deposit ratios and that most are displaying healthy profitability

The Reserve Bank of India (RBI), in its monthly bulletin for August, said the course of the economy over the past month-and-a-half has been altered by the slow retreat of the second COVID-19 wave. The central bank report said that the aggregate demand conditions are buoyed by the release of pent-up demand post unlocking of the economy. The supply situation is also improving with the monsoon catching up to its normal levels and sowing activity gaining pace.

"Reaffirming the traction that the economy is gaining, the manufacturing activity is gradually turning around, while the contraction in services has moderated. Spurred by comfortable liquidity conditions, financial conditions stay benign and supportive of the recovery," the RBI bulletin said.

On the COVID-19 impact on food price mark-ups in India, the RBI report said the behaviour of food price mark-ups exhibited dramatic shifts following the outbreak of COVID-19 and the associated lockdown measures to contain its spread.

However, reflecting the less stringent and localised nature of lockdowns as well as better supply chain management during the second wave of COVID-19 (April-May 2021), the extent of increase in mark-ups was relatively modest, it said.

On TLTRO (Targeted Long-Term Repo Operations) and structural liquidity, the RBI report said the central bank and the government introduced many liquidity enhancing schemes to help NBFCs get through the rough patch amid the pandemic. "NBFCs, which received funds via the TLTRO, witnessed an improvement in their short-term liquidity buckets compared to others," the report says.

The RBI report also said that Small Finance Banks, which are a relatively new bank group that is provided licences to serve the under-served and marginalised sections, have relatively high credit deposit ratios and that most are displaying healthy profitability.

"The empirical results based on quarterly data spanning from March 2017 to March 2020 indicate that bank-level factors like efficiency, leverage, liquidity and banking business are significant in determining SFBs' profitability during this early period of operation," the RBI bulletin said.

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