The Reserve Bank of India Governor Shaktikanta Das has said that the real GDP for FY21 is expected to decline by 9.5%, with risks tilted to the downside. However, he has said that the GDP growth may break out of contraction and turn positive by Q4.
Announcing the Monetary Policy Committee’s decision to keep key interest rates unchanged at 4%, the governor said that there is some evidence of impulses of growth as the economy opens up.
"Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-Covid growth trajectory,” he said.
The Governor, in his address announcing the MPC decision, said that that the economy is likely to see a ‘three-speed recovery’, with individual sectors showing varying paces, depending on sector-specific realities. He expects the agriculture and allied activities; fast moving consumer goods; two wheelers, passenger vehicles and tractors; drugs and pharmaceuticals; and electricity generation, especially renewables sectors to show resilience and the first signs of recovery.
The Monetary Policy Committee in its penultimate meet for 2020, decided to maintain the repo rate -- or short-term lending -- rate for commercial banks, at 4%. Besides, the reverse repo rate stands unchanged at 3.35%, and the marginal standing facility (MSF) rate and the 'Bank Rate' at 4.2 per cent. The MPC voted to maintain accommodative stance, thus opening up possibilities for more future rate cuts.
"The MPC evaluated domestic and global macroeconomic and financial conditions and voted unanimously to leave the policy repo rate unchanged at 4 per cent," the Governor said.
According to Das, India's economy is entering into a decisive phase in the fight against the pandemic.
The RBI also announced a slew of measures to help improve liquidity in financial markets, offer regulatory support for flow of credit, and revive the economy.
After making NEFT payments available 24x7, the Governor announced that the RTGS system will also be made available round the clock on all days from December 2020.
“This will facilitate innovations in the large value payments ecosystem and promote ease of doing business,” the Governor said.
The RBI said that it will rationalise risk weights for home loans to help boost the real estate sector. "In recognition of the role of the real estate sector in generating employment and economic activity, it has been decided to rationalise the risk weights and link them to LTV (Loan-to-Value) ratios only for all new housing loans sanctioned up to March 31, 2022,” he said.
This is expected to benefit the real estate sector by making more credit available to those taking home loans, especially for loans of higher value. LTV ratio is how much banks are willing to lend against the value of a property and is used to determine how risky a loan is. Under the current norms, different risk weights are applicable to home loans depending on the size of the loan and the LTV ratio. The higher the risk, the more provisions banks will have to make. According to experts, rationalising risk weights will mean that banks will have to make lesser provisions, which will improve the bank’s ability to offer home loans.
The RBI also enhanced the threshold limit of retail portfolio of banks to Rs 7.5 crore, with a view to improve the credit flow to small businesses.
Under the extant framework, the maximum aggregated retail exposure to one counterparty should not exceed the absolute threshold limit of Rs 5 crore.
With IANS inputs