RBI Governor Shaktikanta Das Discusses Liquidity, Credit Supply With Shadow Banks

Reserve Bank of India Governor Shaktikant Das on Monday met representatives of non-banking financial companies and mutual funds through video conferencing, days after the government extended a 40-day nationwide lockdown to curb the spread of the coronavirus (COVID-19) pandemic. The RBI Governor's talks with shadow banks and mutual funds comes at a time when an already-slowing economy is staring at the economic fallout from the coronavirus-triggered lockdown, which has continued for the sixth week running and hurt investor sentiment.

Talks with representatives from the NBFC sector - also known as shadow banks - covered issues such as the availability of liquidity from banks and other financial institutions, post-lockdown strategies for the supply of credit and implementation of the three-month moratorium on repayment of loan instalments already announced by the RBI, the central bank said in a statement.

The RBI governor also discussed the credit supply to micro, small and medium enterprises, traders as well as bottom-of-pyramid customers in the semi-urban, rural and urban parts of the country, and the strengthening of grievance redressal mechanisms.

Mr Das acknowledged the critical role played by non-banking financial companies - also known as shadow banks - in delivering last-mile credit as well as the importance of mutual funds in financial intermediation.

Separate discussions with representatives of the mutual funds industry sector covered issues such as the impact of the liquidity-focused measures undertaken by the central bank, the functioning of bond markets, as well as plans for the way forward, according to the official statement.

Last month, the RBI opened a special liquidity facility worth up to Rs 50,000 crore to help mutual funds tide over the severe liquidity strain arising from the coronavirus pandemic, after US-based Franklin Templeton wound up six of its funds in the country for lack of liquidity.

The meetings were attended by the RBI's deputy governors and other senior officers.

During the weekend, the RBI chief held similar meetings with heads of major public- as well as private-sector lenders to discuss the current economic situation in the country.

On Friday, the government further extended the COVID-19-induced lockdown for two more weeks with eased restrictions for unaffected zones.

Meanwhile, the central bank has already announced several steps to ease the pressure faced by borrowers, lenders and other entities including mutual funds and has promised to take more initiatives to deal with the developing situation. It has injected funds amounting to 3.2 per cent of GDP into the economy since the February 2020 monetary policy meeting to tackle the liquidity situation.

In March, the government unveiled a Rs 1.7 lakh crore package of free food grains and cash transfers to the poor to aid their fight against the pandemic.

Many groups of economists have warned of a crash in the country's GDP or gross domestic production expansion or even recession due to the fallout from the coronavirus outbreak, which has pushed world business into a standstill and shaken global financial markets.

Last month, credit ratings major Moody's cut its forecast for the country's GDP expansion to 0.2 per cent in 2020, marking a sharp downward revision compared to its projection of 2.5 per cent in the previous month. Moody's, however, said it expects the country's GDP growth to rebound to 6.2 per cent in the next year.