A day after Finance Minister Nirmala Sitharaman unveiled a Rs 1.7 lakh crore economic welfare package for the poor in the backdrop of the coronavius pandemic, the Reserve Bank of India (RBI) Governor Shaktikanta Das has announced a press conference at 10 am on March 27.
Beginning March 25, for a period of three weeks, India is under a complete lock-down to curb the spread of the COVID-19. This will have an impact across key economic segments including manufacturing, services, construction and tourism. On March 26, the government announced a mix of measures including direct cash transfers and distribution of free food grains for a period of three months to help the economically weaker sections of the society tide over the crisis phase. Now, it is RBI’s turn.
Following are the three likely outcomes of Das’ presser:
A 25-50 bps rate cut?
In the context of a major economic slowdown and a 21-day lock-down to counter the coronavirus spread, economists expect a rate cut by the monetary policy committee (MPC) latest by 3 April. But, the MPC can announce it earlier as well, considering the present scenario as an exception. Market expects anywhere between 25-50 basis points rate cut in key rates. One bps is one hundredth of a percentage point. A significant rat cut at this juncture may not revive loan demand in a big way but can act as a sentimental booster to the financial system and lower the borrowing cost in the money market.
In the current rate cycle, the RBI has cut rates by 135 bps so far. This has not reflected in a significant manner on credit off take because the economic activities have slowed to a trickle on the ground. There is no genuine demand. Even then, given the depth of the economic mess, a rate cut can come as a major sentimental relief for borrowers. World over, over 40 central banks have cut their key lending rates to fight the Virus impact. Earlier, Das too had indicated that a coordinated rate action is needed globally.
The RBI, which indicated that it was willing to act in coordination with the government to fight the COVID-19 impact on the economy, could announce a few measures to ease the pain on banks and industries which are suffering from the lock down.
These could include temporary relaxations on NPA (non-performing asset) recognition rules for certain sections of borrowers including small entrepreneurs, temporary EMI payment exemptions for those hit by the virus outbreak. Such a provision could help both banks and borrowers. Under normal circumstances, if a borrower defaults payments for over 90 days, the bank will have to tag that account as NPA and make provisions accordingly.
In the current scenario where the whole country is under a prolonged lockdown, a number of loan accounts could turn bad putting bank balance sheets at risk. This will have ramifications on the customer profiles too. Bank analysts have warned that the actual impact of the current lock down could be felt in the next two quarters and hence they had sought a loan forbearance for at least next two quarters.
More liquidity easing measures?
The RBI could also announce further liquidity easing measures at the presser today. The central bank, in the past few days, has been actively engaging with the market through repo operations to infuse significant liquidity into the system to ensure that the financial system doesn’t turn illiquid. The central bank has also been doing rupee dollar swap operations to minimise the currency swings. There is a possibility of these measures continuing.