Letter to BS: RBI's measures to tackle Covid-19 are in the right direction

Few can dispute the indispensable role of the Reserve Bank of India (RBI) in mitigating the repercussions arising out of the outbreak of coronavirus which is now upending the lives and livelihoods of people across the spectrum, particularly the poor and other vulnerable sections in the country. A slew of measures unveiled by the RBI with a four-pronged approach — to ease the financial constraints faced by the non-banking financial companies (NBFCs) and microfinance institutions, incentivising banks to boost credit flow, easing the financial constraints faced by the state governments and relaxing regulatory norms on the banks and NBFCs — are steps in the right direction. By lowering the reverse repo rate further, the RBI has disincentivised banks from parking their surplus funds with it. A question remains: Will the risk-averse banks lend? Opening up of the refinance facility for banking institutions has now enhanced the possibility of more credit flow to the agriculture sector, micro, small and medium enterprises (MSMEs) and cash-strapped finance companies. While further increase in the advances limit for the state governments would ease their present financial constraints, it can hardly address the root cause of the problem — the collapse in government revenues. As things stand, the RBI will resort to further rate cuts.

M Jeyaram Tamil Nadu

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