The Reserve Bank of India (RBI) policy stance is clearly pro-growth, which is critical to achieve the target of becoming a $5-trillion economy by 2025. Of late, the Indian economy has been going through a challenging phase. GDP growth, although still high in comparison to other major economies, has been falling short of expectations. Recently, the International Monetary Fund (IMF) cut the gross domestic product (GDP) growth forecast to 7 per cent from 7.3 per cent for FY20.
RBI itself has cut the GDP growth target to 6.9 per cent from 7 per cent for FY-20. It expects the first half of FY20 to clock growth of 5.8 per cent to 6.6 per cent and the second half to clock growth of 7.3 per cent to 7.5 per cent. But the risks are somewhat tilted to the downside.
The weakening of demand along with the liquidity crisis in non-banking financial companies (NBFCs) are the two biggest challenges right now, and the central bank has clearly focussed on these two issues. It raised the ceiling for banks' exposure to a single NBFC to 20 per cent of the bank’s Tier-I capital, from 15 per cent earlier. It also relaxed the definition of priority sector lending, so that banks can lend to those NBFCs that further lend to such sectors. RBI has also announced the setting up of a central payments fraud registry to track the systems for frauds. It is expected to come up with detailed guidelines by the end of August to tackle the NBFC crisis. These measures, taken to increase flows to NBFC, is credit-positive and should enhance lending.