The first bi-monthly Monetary Policy Committee (MPC) in FY 2019-20 begins on April 2, 2019. A week back, Federal Open Market Committee (US) in its last bi-monthly meeting changed its stand and announced that there will be no rate hike this year, after announcing previously that two rate hikes will be appropriate in 2019. The Federal Reserve - US Central Bank - reduced expectations on GDP and inflation and forecast a higher unemployment outlook. The forthcoming MPC is expected to take the changed scenario in the largest economy of the world. This MPC assumes special significance as it comes close to the General Elections. Market is keenly watching to see it both in terms of rate decision, if any, and policy guidelines relating to regulation and macroeconomic assessments.
Against this background, a few expectations from the Banking and ARC Sectors are enumerated below:
1. Reduction in Cash Reserve Ratio (CRR) from 4% to 3%
Banks have to maintain CRR with the RBI for contingencies though they do not get any interest on these. At present it is 4%, and there has been no change in the last six years.
2. Reduction in Repo rate by at least 25 basis points
3. Reduction in minimum investment required by ARCs in Security Receipts (SRs) from 15% to 5%
4. ARCs may be permitted to subscribe to equity and extend interim finance for cases under IBC
ARCs are institutional entities created under a central legislation SARFAESI Act to resolve NPAs. However, in terms of current regulations, they cannot invest in equity (other than through debt conversion) and cannot extend finance to a sick unit (without first acquiring the debt).
It is suggested that for cases under IBC where ARC is a resolution applicant, they may be permitted to invest in equity or extend need-based finance to stressed assets for a successful turnaround.
(The Author is an honorary advisor to Assocham on ARC and Banking. Views personal)