A progressive and growth supportive policy need of the hour

In the meeting with the RBI Governor on the First Bi-Monthly Review of Monetary Policy for 2018-19, Ms Shobana Kamineni, President, CII, while appreciating the efforts of the RBI towards stabilizing the economy, stated that the Central Bank should continue to provide the requisite policy support which would enable industry to raise capital at affordable cost and support the turnaround in the economy.

'There are enough indications that the green shoots of recovery are gathering traction in the economy and a policy action by the RBI which would refurbish business sentiment, support domestic demand and trigger the turn of the investment cycle is very much required', said Ms Kamineni.

Elaborating on the recommendations, Ms Kamineni was of the view that the RBI should continue to maintain a status quo on the policy rate as indicators of inflation have started coming down. She said that with CPI inflation hovering at around 4.5%, there is scope for the cost of credit to moderate. Under the circumstances, a status quo in rates would address the upside risks to inflation while meeting the collective aspirations of growth.

The RBI should also maintain sufficient liquidity in the bond market so that interest rates can moderate, stated Ms Kamineni.

Further, Ms Kamineni suggested that the RBI should reintroduce LOUs with proper checks and balances. The recent decision of the RBI to ban LOU is impacting genuine importers by squeezing their liquidity, raising their borrowing cost and in turn putting pressure on the rupee. The traders who have been conducting business through these instruments will now have to necessarily shift their transactions to Letters of Credit and Bank Guarantees. The result would be that cost of credit may go up, especially for the SMEs. The small players are already under pressure owing to slow GST refund and therefore, this is like a double whammy. The reintroduction of LOUs and letters of Comfort would help manufacturers in undertaking cost-effective production for both the domestic and export markets, maintained Ms Kamineni.

According to Ms Kamineni there is need to review and reconsider the Notification announced by the RBI on February 12, 2018, whereby the guidelines on the resolution of stressed assets have been revamped and all the existing guidelines and schemes for debt restructuring been withdrawn.

Such a move has left companies that were restructuring their debt under earlier announced schemes such as 5/25, S4A and SDR stranded. Besides, the timeline of the Resolution plan are strict and default thresholds are low. This may well mean that most of the cases will go under the Insolvency & Bankruptcy Code, 2016 (IBC) leaving limited time to banks and promoters to find a sustainable solution. Besides, the Resolution would not differentiate between a genuine and a wilful defaulter and companies which would have the potential to turnaround their operations and have defaulted on loans owing to unfavourable business conditions would be hit. The Resolution would not only move such companies to the brink of bankruptcy but would also raise the NPAs of banks and their provisioning needs are likely to rise as more cases are referred under the IBC. Hence, there is need to review this Notification by providing some flexibility in its provisions, reiterated Ms Kamineni.

Ms Kamineni also sought the response of the RBI on its expectation with regard to the timeline over which the NPA problem can be addressed, assuming the status quo in banking sector reforms to be implemented by the government. She said that this would give some reassurance to investors regarding the soundness of the banking system.

Finally, the CII President mentioned that the number and frequency of bank holidays needed closer scrutiny in view of the hardships that industry and the common man face, when bank holidays are long and too frequent.

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