Key Takeaways and Highlights Of RBI Governor Shaktikanta Das’ Speech

Reserve Bank of India Governor Shaktikanta Das has made an unscheduled speech on 5th May 2021 as the second wave of coronavirus continues to devastate the country. India has emerged as the coronavirus hotspot, with surging cases overwhelming the healthcare system. India has already crossed the 2-crore mark in total Covid infections caseload, which is the second highest globally -- just behind the United States and ahead of Brazil.

Prime Minister Narendra Modi has so far resisted pressure to impose a lockdown to stem the spread of the dreaded virus. Earlier this week, president of the Confederation of Indian Industry and chief executive of Kotak Mahindra Bank Uday Kotak had called upon the government to consider curtailing economic activity to cut the transmission chain of coronavirus.

RBI Governor Shaktikanta Das has said:

- India is fighting a ferocious rise in Corona cases and we have to marshall all our resources with renewed vigour.
- The RBI continues to monitor the Covid-19 situation closely.
- Have faith in India's ability to come out of Covid-19 crisis.

Keeping an eye on all sections of the Indian economy amid second wave of Covid-19, the Reserve Bank of India (RBI) Governor Shaktikanta Das today expressed full confidence in Indian resilience against the deadly pandemic. To strengthen all stake holders in the India's fight against Corona, the RBI Governor announced various measures to equip public in general, Indian banks, industries and other stake holders.

The key takeaways from the RBI Governor Shaktikanta Das speech today:

1] To ease access to Emergency Health Service, the RBI announced and boost provision of immediate liquidity for ramping up COVID related healthcare infrastructure and services in the country, an on-tap liquidity window of ₹50,000 crore with tenors of up to three years at the repo rate is being opened till March 31, 2022. Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufactures; importers/suppliers of vaccines and priority medical devices; hospitals/dispensaries; pathology labs; manufactures and suppliers of oxygen and ventilators; importers of vaccines and COVID related drugs; logistics firms and also patients for treatment.

2] Normal monsoon forecast to help contain food price inflation as the production is expected to meet the demand in coming times.

3] ₹50,000 crore priority lending by banks for hospitals, oxygen suppliers, vaccine importers, Covid drugs by March 31, 2022.

4] Opening of the 2nd window to individual, small borrowers having up to ₹25 crore loans for restructuring loans if not availed earlier.

5] Rationalisation of KYC compliance norms enabling video-based KYC for certain categories.

6] Ease in rules for availing overdraft facility for state governments up to September 30, 2021.

7] ₹10,000 crore allocation for small finance banks under SLTRO

Highlights of RBI Governor's Unscheduled Speech today are as under:

Assessment of the Current Economic Situation:
The global economy is exhibiting incipient signs of recovery as countries renew their tryst with growth, supported by monetary and fiscal stimulus. Still, activity remains uneven across countries and sectors. The outlook is highly uncertain and clouded with downside risks.
In April 2021, the International Monetary Fund (IMF) revised up its global growth projection for 2021 to 6.0 per cent (from 5.5 per cent projected in January 2021) on the assumption that vaccines would be available in advanced economies (AEs) and some emerging market economies (EMEs) by the summer of 2021 and in most other countries by the second half of 2022.
World merchandise trade maintained its recent uptrend, growing by 5.4 per cent in February 2021 on a year-on-year (y-o-y) basis. Consumer price index (CPI) inflation remains benign for major AEs; in a few EMEs, however, it persists above targets on account of firming global food and commodity prices. Global financial markets regained buoyancy in April on vaccine optimism after bouts of volatility in February-March, followed by corrections.

On the domestic developments, aggregate supply conditions are underpinned by the resilience of the agricultural sector. The record food grains production and buffer stocks in 2020-21 provide food security and support to other sectors of the economy in the form of rural demand, employment and agricultural inputs and supplies, including for exports. The forecast of a normal monsoon by the India Meteorological Department (IMD) is expected to sustain rural demand and overall output in 2021-22, while also having a soothing impact on inflation pressures.
Aggregate demand conditions, particularly in contact-intensive services, are likely to see a temporary dip. The dent to aggregate demand is expected to be moderate in comparison to a year ago. Reports suggest that the disruption in manufacturing units so far is minimal.
The Purchasing managers’ index (PMI) for manufacturing continued in expansion mode at 55.5 in April 2021 compared to 55.4 in the preceding month. Overall, the high frequency indicators are emitting mixed signals.

CPI inflation edged up to 5.5 per cent in March 2021 from 5.0 per cent a month ago on the back of a pick-up in food as well as fuel inflation while core inflation remained elevated. The inflation trajectory over the rest of the year will be shaped by the COVID-19 infections and the impact of localised containment measures on supply chains and logistics.

India’s merchandise exports and imports rose sharply in March 2021. For the year 2020-21 as a whole, the merchandise trade deficit shrank to US $98.6 billion from US $ 161 billion a year ago. The current account balance, which had been recording surpluses from January 2020 through September 2020, flipped and turned into a slender deficit of 0.2 per cent of GDP in Q3:2020-21. Foreign exchange reserves were at US$ 588 billion on April 30, 2021. This gives us the confidence to deal with global spillovers.

Domestic financial conditions remain easy on abundant and surplus system liquidity. The average daily net liquidity absorption under the liquidity adjustment facility (LAF) was at ₹5.8 lakh crore in April 2021. The first auction under G-SAP 1.0 conducted on April 15, 2021 for a notified amount of ₹25,000 crore elicited an enthusiastic response as reflected in the bid-cover ratio of 4.1. G-SAP has engendered a softening bias in G-sec yields which has continued since then.

Purchase of G-Secs: Given this positive response from the market, it has been decided that the second purchase of government securities for an aggregate amount of ₹35,000 crore under G-SAP 1.0 will be conducted on May 20, 2021. With system liquidity assured, the RBI is now focusing on increasingly channelising its liquidity operations to support growth impulses, especially at the grassroot level.

Additional Measures Announced:

  • Term Liquidity Facility of ₹50,000 crore to Ease Access to Emergency Health Services
  • Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs)
  • Lending by Small Finance Banks (SFBs) to MFIs for on-lending to be classified as Priority Sector Lending
  • Credit to MSME Entrepreneurs
  • Resolution Framework 2.0 for COVID Related Stressed Assets of Individuals, Small Businesses and MSMEs.
  • Rationalisation of Compliance to KYC Requirements
  • Utilisation of Floating Provisions and Countercyclical Provisioning Buffer
  • Relaxation in Overdraft (OD) facility for States Governments

To read the full report of Governor's Speech please click here: Governor’s Statement - May 5, 2021
Source;; NDTV, Livemint, Financial Express, Business Standard

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