Indian economy showing signs of returning to normalcy, says RBI Governor
Medium-term outlook is uncertain and depends on the COVID-19 curve, he said
Mumbai: The Indian economy has started showing signs of normalcy with ease in lockdown restrictions across the country, RBI Governor Shaktikanta Das said on Saturday.
He added that post containment of COVID-19, a very careful trajectory has to be followed in orderly unwinding of countercyclical regulatory measures.
The financial sector should return to normal functioning without relying on regulatory relaxation as the new norm, he added.
“Indian economy has started showing signs of going back to normalcy after easing of restrictions,” Governor Das said at the 7th SBI Banking and Economics Conclave.
Covid-19 is the worst health and economic crisis in the last 100 years with unprecedented negative consequences for output, jobs and well being, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Saturday.“The pandemic has dented the existing world order, global value chains, labour and capital movements across the globe,” Das said .
Das said the pandemic, perhaps, represents so far the biggest test of robustness and resilience of “our economic and financial system”.
While the multi-pronged approach of the Reserve Bank has provided a cushion from the immediate impact of the pandemic on banks, the medium-term outlook is uncertain and depends on the COVID-19 curve, he said.
“Policy action in medium-term would require a careful assessment of how the crisis unfolds,” he said, adding that building buffers and raising capital will be crucial not only to ensure credit flows but also to build resilience in the financial system.
Rate cuts to boost economy
The RBI Governor said that from February 2019 till the onset of Covid-19 in the country, the repo rate was cut on a cumulative basis by 135 basis points. The move was taken primarily to tackle the slowdown in growth which was visible at that time, he said. Das added that such measures would have positively impacted the economic activity in the country but the coronavirus crisis followed.
“The lagged impact of these measures was about to propel a cyclical turnaround in economic activity when Covid-19 brought with it calamities, miseries, endangering of lives and livelihood of people,” he added.
Das said that the six-member monetary policy committee (MPC) has decided to cumulatively cut the repo rate by 115 basis points.
“So from February 2019 the total rate cut that RBI has undertaken is 250 basis points,” Das stated.
Banks need to improve risk management
The country’s banking and financial system is capable of rising to the occasion in meeting this challenge, he asserted.
In these challenging times, banks have to improve their governance and sharpen their risk management, he said.
Banks will also have to raise capital in an anticipatory basis instead of waiting for a situation to arise, Das noted.
The economic impact of the pandemic due to the lockdown and anticipated post-lockdown compression in economic growth may result in higher non-performing assets and capital erosion of the banks, Das cautioned.