RBI Should Provide Relief In Loan Repayment To Businesses Due To Covid-19 Disruption
Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
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By Sunil Garodia
First publised on 2020-03-17 11:12:45
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Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
View all posts by this Author
The governor of the Reserve Bank of India (RBI), Shaktikanta Das, gratefully admitted that there will be extreme disruption due to the spread of Covid-19 and consequently growth will be hit hard in the press conference the apex bank urgently called on Monday. Beyond that, and answering questions about the Yes Bank reconstruction plan, the presser achieved little.
If the government and the RBI are worried that growth will suffer due to Covid-19, does it not recognize that the negative effect on growth will be a sum total of the problems faced by all business entities? Then why did the RBI governor not specify what relief the apex bank is going to provide to businesses that have taken loans from banks? Given the precarious state of the economy even before coronavirus struck and the subsequent disruption caused by the pandemic, the cash flow of all business, whether big, medium or small, is going to take a severe hit. How then will they pay their monthly loan installments? They run the risk of being put in the non-performing assets (NPAs) list if they default on payments for three or more consecutive months from the end of a particular quarter. Shouldnât the RBI think of providing some relief (like increasing the default period to six months or allowing part payment) to businesses?
Disruption in business activity due to the Covid-19 pandemic cannot be compared to a usual economic slowdown. Businesses create reserves to tackle periods of slowdowns or negative growth as they are considered part and parcel of doing business. But any extraneous factor like a pandemic that can cause near-total disruption of business activity and cause immense losses is not factored in any business plan. Even at the most conservative estimate, the disruption caused by Covid-19 is going to last for at least the next two quarters, if not more.
For, what we are witnessing is just the beginning. If community transmission happens in India, it will be a disaster of a scale the country has never seen before. Fortunately, the government took steps very early to restrict entry of travelers from abroad and was prompt in ordering their screening and isolation. But unfortunately, it slipped in carrying out tests within the country and did absolutely nothing for asymptomatic cases. Thus, we do not yet know what kind of bomb we are sitting on and when and with what intensity will it burst. Hence, the RBI should work out a relief package for loan repayment by businesses without any delay. Otherwise, the already negative sentiment in the economy will go down further and businesses will become defaulters for little fault of their own.
