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Comment of Dr HK Pradhan, Professor of Finance & Economics, XLRI, on Impact on NBFC of the RBI Policy

19th April, 2020

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 signalling 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 utilise 50 per cent 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 utilise this money.

Further, the banks can also grant moratorium to NBFCs on their repayment obligations, subject to additional provision of 10 per cent 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 deeper recession.