Quote of Dr HK Pradhan, Professor of Finance & Economics, XLRI – Xavier School of Management, Jamshedpur on the measure announced by RBI today.

With the RBI cutting the reverse repo rate by 25 basis point this time, and a 90 basis point cut already on March 27, the signaling is for the banks not to invest excess funds with the RBI, but engage in business loans. There is also an additional mandate for the banks to utilize 50 percent of their borrowing from RBI through TLTRO (targeted long term repo operations) for lending to SMEs and NBFCs. Better and bigger NBFCs should be able to issue bonds where banks can utilize this money.

Further, the banks can also grant moratorium to NBFCs on their repayment obligations, subject to additional provision of 10 percent at the moment. All these are very welcome steps, taken together will have a positive impact on the NBFCs resource position, thereby credit flows to SMEs and microfinance borrowers. RBI is proactive and progressing in a measured direction at a time when the economy is tail spinning into a deeper recession.