The Reserve Bank of India (RBI) governor Shaktikanta Das on November 26 said the Indian economy's recovery had been stronger than expected but the country needed to be watchful of the sustainability of demand after the festival season.
The central bank was committed to ensuring orderly functioning of financial markets and would continue to evaluate incoming information. The RBI would act to mitigate risks whenever required, Das said at FEDAI annual day programme.
In its October meeting, the bank's monetary policy committee (MPC) said it would see through near-term inflation pressures and maintain an accommodative stance to support growth. The MPC retained the rates unchanged in the October policy. The RBI also predicted a 9.5 percent contraction in the GDP in the current fiscal.
The central bank has cut key lending rates by 250 basis points since February 2019 to support growth. One bps is one-hundredth of a percentage point. Das said the domestic market that was stable at the start of the year worsened due to the coronavirus outbreak.
The outbreak hit the economy hard, forcing the country to go into a nationwide lockdown beginning the last week of March. The prolonged lockdown brought business activity to a halt and led to job losses across sectors.
To help the stressed sectors, the RBI launched a series of liquidity-easing measures and also announced a six-month moratorium on EMI payments.
Since then, the central bank has also announced a one-time restructuring (OTR) programme for Covid-linked stressed assets. Banks have to take the final call in implementing the OTR by December.
On account of falling demand, the bank credit growth has slowed down significantly. Growth in overall bank credit fell below 6 percent till September with that for industries taking the biggest hit.
While the rates cuts have helped to bring down the bank lending rates both for corporate and retail borrowers, banks’ high-risk aversion to industries and muted demand limited the credit flow to productive sectors.
