Reserve Bank of India (RBI) Governor Shaktikanta Das said in a recent interview that banks were not willing to take credit risk beyond a point. The reason: The ₹3.74 lakh crore surplus liquidity was not reaching those hit hardest by the current crisis — non-banking financial companies (NBFCs), microfinance institutions (MFIs), micro, small and medium enterprises (MSMEs) and mutual funds.
In fact, there was no dearth of liquidity in the banking system even pre-Covid. Risk-averse bankers were happily depositing funds back with the RBI and earning riskfree returns. The bankers' retort was, why should one take credit risk in a slowing economy? Similarly, when over ₹1 lakh crore was pumped in by the RBI to encourage banks to buy corporate bonds, bankers invested the money in PSU bonds, and made a killing. Outsmarted twice, the RBI is now reviewing the situation before deciding its next course of action. Das’ words carry a subtle message – the Centre needs to step in urgently to create confidence among banks to lend. Companies are gasping for funds, and left to fend for themselves, may go bankrupt.
But not everyone agrees. “This is an unconventional war on the economy. A traditional blanket liquidity measure will not work as some will not get the benefit at all, while some others may get more benefit,” says Arun Singh, Chief Economist at Dun & Bradstreet. “The risk capital in the system is very low. The surplus liquidity will not naturally convert to either lending beyond a particular risk profile or investing beyond a particular risk profile,” says Suyash Choudhary, Head (Fixed Income) at IDFC AMC.
First-loan loss direct guarantee by government for Covid-impacted segments
An SPV to house a government-sponsored fund
This story is from the May 31, 2020 edition of Business Today.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the May 31, 2020 edition of Business Today.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber? Sign In
Picking Up The Paytm Pieces
Paytm Founder Vijay Shekhar Sharma Is Back In The Trenches After Rbi's Recent Action Left Him Without A Banking Platform. There Are Still Some Opportunities, But He Will Have To Move Swiftly To Grab Them
PMS Vs MF The Big Fight
How do mutual funds and portfolio management services match up? Know the score on structure, rules, entry fees, charges, and tax perks to pick the right path for your financial journey
Four Levers Of Enterprise AI Strategy
Wide-scale private sector AI deployment and new AI-based business opportunities and ecosystems can truly supercharge the Indian economy
"Don't let a unique chance slip by"
JEFF MAGGIONCALDA | CHIEF EXECUTIVE OFFICER | COURSERA
THE INCOMING DISRUPTION
The disruption in the industrial sector is still unknown, but inevitable. Companies need to wake up
THE WHEEL WHISPERER
For Manan Shah, Managing Director of MICL Group, luxury cars are not about showcasing one's wealth or status. It is about personal well-being
TRIPPING WITH TECH
A road trip is an adventure like no other. While you take in the experience, get some peace of mind with these nifty gadgets
Transforming Spaces
WHETHER YOU WANT TO REDECORATE YOUR BEDROOM OR HALLWAY, A GORGEOUS WALLPAPER ADDS FLAIR TO YOUR HOME AND ALLOWS YOU TO STAMP YOUR STYLE IN YOUR NEW ABODE
ALPHATALE
MONEY MANAGERS TO THE AFFLUENT DELIVERED ROBUST RETURNS TO INVESTORS IN THE PAST YEAR, THANKS TO THE BUOYANCY IN THE MARKETS. BUSINESS TODAY DECODES THEIR STRATEGY
"THE ALTERNATIVES SPACE CAN GROW 3X IN FIVE YEARS"
Vikaas M. Sachdeva, MD of Sundaram Alternates, talks about where India's alternative investment industry is headed