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The RBI delivered a fourth consecutive policy rate cut this week, taking the repo rate down by an overall 110 basis points. Along with interest rates, it has also been addressing the liquidity issue, and there is a clear shift in liquidity to surplus as indicated by the central bank. The RBI as well as many analysts are betting on a growth revival in the second half of the current financial year after cutting down growth estimates for the first half.
Much of this would depend on one, the transmission of interest rate cuts, and two, the ability of banks to lend freely. Flow of credit to consumer segments like auto and housing would be crucial as festival season buying is the next best hope for demand revival. Some of the announcements in the credit policy on reducing the risk weight on consumer credit excluding credit cards, and increase in single NBFC exposure by banks should provide some relief in terms of funds flow from banks to consumer loans and NBFCs. Banks have also been allowed to lend to NBFCs for on-lending to priority sector.
The government should also get on quickly with the Rs 70,000 crore recapitalisation programme for public sector banks as announced in the Union Budget. That would help banks that stay stingy on lending due to lack of regulatory capital. The Centre has little fiscal headroom, and hence would do well to quickly roll out the Rs 1.05 lakh crore disinvestment programme for the current year. CPSE-ETF’s next tranche just on the back of tax concession announced in the budget was a fast one, and strategic disinvestments and offer for sale should also be done early on instead of rushing to hit the target before the close of the fiscal year. There was a quick response from the Central government in the issue of IBC (Insolvency and Bankruptcy Code) with much needed amendment, a big relief for banks waiting for some major cases to be resolved. Similar alacrity and response is required at this juncture to bring confidence among lenders and also among businesses to commit fresh investments.
