Due to coronavirus, markets and industries across the world are facing a massive slump in demand. In India, RBI has decided to pump ₹10,000 crores into the market via Open Market Operations (OMO) – buying back government securities – to increase liquidity and monetary transmission. In addition to this, RBI has also announced up to ₹1 trillion in long-term repo operations in multiple tranches, besides a $2 billion dollar swap, in which it will buy dollars from the market now and sell it six months from now, increasing the flow of rupee in the Indian economy.
The main focus of the Government is to keep the economy running without falling into a financial crisis. The small and medium-sized businesses (MSMEs) employ more than 100 million people and account for 45% of factory output and contribute 40% of the nation’s export. Thus, the Finance Ministry has reconsidered the repay terms of borrowed loans and interest rates for MSMEs. Loan tenors for MSMEs are also extended.
NPAs Hindering RBI’s Measures
On the other hand, the Indian financial sector especially banks are struggling because of high Non-Performing Assets (NPAs). Amid coronavirus threat, Indian banks are worried about a fresh spike in bad loans and thus have appealed to the government to ease the bad-debt classification criteria for the time being. The Indian banking sector is still healing from the bruises of Yes Bank debacle.