RBI Policy Announcement

Raj Nair- President, IMC Chamber of Commerce and Industry and Chairman, Avalon Consulting

April 4, 2019

IMC Chamber of Commerce and Industry thanks the RBI for heeding our call for 25 bps repo rate cut and for its timing which was essential and opportune. Kudos for Part B on the dev and regulatory policy which augurs well for Banks, good NBFCs and small agri loans.


The timing was opportune because of three reasons:

  • Inflation is under control and well below the redline of 4%. It has been so for many months and is expected to continue according to their own estimates.
  • There is no risk of steep fall in the Rupee when the dollar is weakening.
  • There is no risk of big forex outflows when the world is also reducing interest rates or holding on to already low rates.

The timing was essential also for three reasons:

  • The domestic economy’s growth has been muted in the last two quarters for various reasons.
  • There are global cues about a likely recession by 2020 and a slowdown even earlier, which can impact India’s exports both in terms of quantity as well as margins. Inversion of the US bond yields is a strong advance indicator of probable recession.
  • There is risk of the agricultural economy getting affected by a likely delayed and sub normal monsoon due to the El Nino effect playing out till May before easing off from June. More than the precipitation being some % below the long term average, it is the scatter and delay that can affect the Indian rural economy.

In this context, Part B of the Governor’s policy announcement is very important. It provides for averting a borrowing crisis for MSME by Q2 of FY 20 when NBFC’s lending ability was expected to drop sharply and lending rates were expected to rise. As per the new policy, there will be harmonisation of different categories of NBFCs and also a rearrangement of risk weightages to enable better-performing NBFCs to be able to access more banking funds and at a lower rate. Banks themselves will get flexibility in raising bulk deposits because of the change in definition. Similarly, by raising the limit of collateral-free loans to farmers from Rs 1 lakh to Rs 1.60 lakhs it will help small farmers access formal lending sources in stead of going to loan sharks.