RBI Key Takeaway: Banks, NBFCs being encouraged to provide credit to SMEs, says Deloitte's Mani

RBI Governor Shaktikanta Das called a press conference at a very short notice today to make a number of announcements meant to boost the economy in the wake of the coronavirus lockdown impact. Among these measures was a cut in reverse repo rate by 25 basis points. This is seen as a bid to push banks to deploy excess funds within the system toward lending, and helping revive growth.

Saying that India is standing strong in the midst of coronavirus pandemic, RBI Governor said, "IMF projection of 1.9% GDP growth for India is highest in G20." He added, "India is expected to post sharp turnround in 2021-22. RBI will announce new measures to maintain adequate liquidity in system, facilitate bank credit flow, ease financial stress"

In his reaction, Vijay Mani, Partner, Deloitte India, said, "Key takeaway is that liquidity infusion measures are now more targeted – banks and NBFCs being encouraged to provide credit to small and medium businesses through these additional measures. That’s a good move." 

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He added, "It’s also encouraging that the RBI has said that this a beginning and they will keep watching if more needs to be done. Measures have been announced on asset classification but understandably, it’s a delicate balancing act; while the moratorium has been made effective from 1-March, banks have also been asked to make 10% provisions in the next two quarters, and they have been asked to not announce dividend for FY20." 

Mani concluded, "This balancing act will need to be regularly revisited in the coming weeks and months and incremental steps may be needed as the situation evolves."