The RBI came up with a loan moratorium during this pandemic. Your views.
I think there should be some scope in the system for temporary stopgap measures, especially, if the shock is unprecedented like this pandemic, which no one could have anticipated. The shock in terms of working conditions, the inability of large sectors to generate immediate revenues during lockdown can’t be completely left unaccommodated. The moratorium with a sunset clause is the right approach. The idea is to accommodate the temporary problems, without eliminating the discipline of repaying creditors on time.
We need to prepare the financial system for absorbing losses and ensure there is a wherewithal, both in corporate restructuring as well as in personal delinquencies that may arise.
You have always supported decisive recapitalisation of banks. Why do you think this mitigates the adverse impact of the pandemic?
As we expect some economic activity to revive and rebound with COVID getting controlled, we would want the cost of credit for corporations. Those who have productively aided in the revival, should have low cost of borrowing. The undercapitalised banking system is more interested in maintaining hefty margins to generate a quick return on capital. They are not interested in growing their loan book and competing for loans by offering attractive lending rates. So, if we have an undercapitalised banking system fighting legacy loan problems, coming out of COVID will still not aid in economic recovery. They will act as a headwind to economic recovery. Thus it is crucial to ensure the economy doesn’t have a lasting scar from the pandemic.
Do you think RBI has failed in predicting recent situation where banks and NBFCs went bust? What do you suggest?
This story is from the September 2020 edition of Outlook Money.
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This story is from the September 2020 edition of Outlook Money.
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