The RBI credit policy is positive in terms of the kind of relaxation which they have offered to CRR, particularly for housing, SME and the automobile sectors. This is essentially an attempt on the part of the RBI to boost demand in all personal consumption loans. The relief on the pre-emption will lead to a situation where the cost of credit can come down. So to that extent, it is a real positive and the other very important issue is the long term repo from one year to three years, which essentially is an effort to provide the long term durable liquidity in the market.
The other issue which has been addressed is in the MSME sector where they have extended the relief till December 2020. Any restructuring will not really lead to the downgrading of the asset class. It is an attempt to address or mitigate the hardships of the SME sector which is experiencing some kind of a challenge in terms of their receivable realisation.
Last but not the least, it is relating to the CRE sector where they have extended the DCCO for another one year for genuine reasons. That again is a very welcome step because as of now, when it comes to the commercial real estate sector, at times they are confronted with a situation of demand and there is also a delay in execution of the projects.
I would say that it is a very pragmatic policy coming at a time when we are trying to push the growth rate in the economy. Growth is expected to ride the increase in demand. To that extent, it is a very rounded, very well thought out policy which has been brought in by the RBI.
The RBI has made some concessions to real estate, MSME and auto sectors but it is a very convoluted kind of relaxation. Incremental credit over 31st January, up to 31st July can be exempted from NDTL and poor calculation of CRR. How much of an impact will this make? As far as banks are concerned, how much of a difference will it really make for these sectors?
These relaxations which have been extended for six months to one year, are essentially to rev up the demand in the economy and to encourage the banks to go ahead and lend into the sectors more aggressively. It is to that extent they would wait and watch and see how things move. Depending upon that, perhaps there could be revisiting of these decisions by RBI. When it comes to the kind of a relief which has been given to CRE (commercial real estate) sector and also for MSMEs for restructuring, one year is a fairly good time. We will get to see the results in this kind of a period.
These are temporary reliefs and are not expected to be permanent in nature and are with a very clear intention to revive the demand in the economy and push the growth rate.
The governor said that RBI will continue to do long term repo along with the OMOs and things like Operation Twist etc. in a bid a) to clarify that Operation Twist is being done to lower the interest rates on corporate bonds and not to make government borrowings cheap. Even if we take that at face value, has the RBI done enough? b)As far as the supply side is concerned, there is money but nobody is taking it. Ultimately, growth is something over which RBI has very little control?
When it comes to long term repo, the intention is to provide durable liquidity in the system though currently the banking system is in surplus and more than Rs 300,000 crore is the kind of a number which we get to see. Now when it comes to Operation Twist, the attempt is to shift the yield curve and when it comes to OMO, it is actually moving down the yield curve. These are three different objectives which are being attempted through these three different means. I would say that the attempt is not merely to provide liquidity but also durable liquidity. OMO will have a very different purpose. It will only move the interest rates down the yield curve while Operation Twist is actually shifting the yield curve itself.
