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RBI battle-ready, willing to take necessary steps to promote growth: Shaktikanta Das 

Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said persistently large liquidity infusion by the central banks has ensured large borrowing by the government at a low rate and in a non-disruptive manner.

He said the RBI will take all necessary measures to ensure liquidity in the system and promote economic growth. For now, he expects only a gradual recovery.

At a virtual FICCI National Executive Committee Meeting, Das noted that scheduled commercial banks’ investments in commercial papers and other instruments have jumped in the April-August period while benign financing conditions have pushed corporate issuances to a record high.

Das said the RBI is closely monitoring the market and is in constant engagement with all India financial institutions such as NABARD and NHB.

“As and when required, further measures will be taken. The RBI stands fully prepared and is battle-ready,” Das said.

Das further added that the current government security (G-sec) rates are perhaps the lowest in 10 years, which is mainly due to liquidity, which the RBI has provided to the market.

In August 2020, the yield on 10-year G-sec surged by 35 basis points amid concerns over inflation and further increase in supply of government papers.

But following the RBI announcement of special OMOs or Operation Twist and other measures to restore the orderly functioning of the G-sec market, the bond yields have softened and traded in a narrow range in September, Das said.

Das said scheduled commercial banks’ investments in commercial papers, bonds, debentures and shares of corporate bodies from April 1-August 28 stood at Rs 5,615 crore against a decline of Rs 32,000 crore during the same period last year.

Das said that benign financing conditions and the substantial narrowing of spreads have spurt a record issuance of corporate bonds worth Rs 3.20 lakh crore in FY21 so far.

The RBI Governor added that the economic recovery for India will only be gradual as efforts towards the re-opening of the economy are confronted with higher Covid infections.

He noted that the global economy is estimated to have suffered the sharpest contraction in living memory in the April-June quarter on a seasonally adjusted quarter-on-quarter basis.

“World merchandise trade has been estimated to have registered a steep YoY decline of more than 18 per cent, as per WTO. High frequency indicators point to a tough in global economic activity,” he said.

On the recent restructuring in the banking system, Das said the RBI had to be a careful and balanced call on part of the Reserve Bank, as the primary concern of any banking system should be the protection of depositors’ interest. Depositor’s numbers run into crores while borrowers could only be in lakhs, Das said. The depositors could be retired persons, low and middle group families, he added.

“We don’t want India to revisit the same NPA problem that we saw 4-5 years ago. On the other hand, we are also mindful of the fact that Covid has impacted a large number of businesses. They also needed some relief. Businesses, which are otherwise viable, but due have seen temporary disruptions, have genuine cash flow problems,” he said.

Indian economy contracted 23.9 per cent in the first quarter of the current financial year.

A FICCI-Dhruva’s survey, the fifth survey since lockdown, suggests that 62 per cent of the participants believe it will take 12 months before the economy comes back to normalcy. This was higher than 57 per cent of participants who felt the same in the June survey.

A total of 23 per cent of the industry participants foresee normalcy within nine months, which is in line with 24 per cent participants who believed the same in the June survey. Only 14 per cent of participants now believe business as usual in the next six months against 19 per cent in the June quarter.

In terms of capacity utilisation, Only 13 per cent participants see capacity utilisation above 80 per cent post unlocking against 17 per cent earlier. Participants seeing an under utilisation of capacity below 50 per cent level stayed high at 44 per cent in August. They accounted for 43 per cent in the June survey.

Seventy per cent of participants felt that unlocking of the economy had no impact on their exposure.

 

 

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Event:

 FICCI National Executive Committee Meeting: Keynote address by Mr Shaktikanta Das, RBI Governor to Members of FICCI