Is Indian economy better prepared to deal with COVID-19 than it was during 2008 Global Financial Crisis?

RBI governor Shaktikanta Das announced a slew of measures on Friday morning, including a massive cut in repo rates. However, a statement that stood out in the announcement is that the Indian economy is better prepared in the time of COVID-19 today than it was during the 2008 Global Financial Crisis, pointed out Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co.

“For most of us, the memory of 2008 is that the Indian economy was largely unscathed then and the RBI could be largely credited for the same as it had been conservative in its policies and not allowed the market to open up to all types of financial products,” Sivaramakrishnan said.

She added that the stated policy on being conservative for structured financial products has continued since and if indeed the economy is better prepared, then the banking industry can, at a macro level, heave a sigh of relief.

Sivaramakrishnan said that the statement to public that their their deposits, whether it is with public sector or private sectors banks, is safe provides relief and negates anxiety and panic.

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During his address, Das asserted that Indian banking system is safe, and termed linking banks' share prices to safety of deposits as "fallacious" thinking. The comments, which came after a massive correction in banking stocks following the Yes Bank crisis and coronavirus outbreak, also urged depositors not to resort to panic withdrawals.

"Let me reiterate that the Indian banking system is safe and sound. In the recent past, COVID-19 related volatility in the stock market has impacted share prices of banks as well, resulting in some panic withdrawal of deposits from a few private sector banks. It would be fallacious to link share prices to safety of deposits," Das said.