The governor said that they are now going to think in terms of not just adding to the structural liquidity but also in terms of the equitable distribution of volatility. Last time, when the RBI announced a special window for small finance banks, that was not really taken up. So is guaranteed credit, guaranteed liquidity not really going to reap any benefits?
I agree that this liquidity window which has been made available earlier and is being made available now may not be fully utilised. One has to look at the parallels from what the Fed did last year when they made huge liquidity available across markets, but the actual take-up was not so much. In our case also, it is the sentiment which counts. As a result of the large liquidity available, banks and participants know there is a backstop available if things were to get difficult.
That sentiment actually leads to the expectations of interest rates being under control and funds being available should they be required and that plays a real role. The central banks have learned their lessons from 2008 when the liquidity crisis spilled over into the credit cycle. That is the sentiment behind all this liquidity being made available. I agree with you that it may not be needed fully.
Banks are looking for opportunities. We have a lot of liquidity but as pointed out earlier by a lot of participants, this entire lending today has to be seen alongside the other modes of borrowing which is the corporates raising the CPs and banks are also participating in debentures. If all of that are taken together, the rate of growth of corporate credit is slightly more. Having said that, corporate investment is still not at levels which are probably required or which we would want. As for MSMEs — the current imperative more than anything else is to sustain these units. Otherwise, a lot of these smaller units will go under. Therefore last year also, whatever growth we saw was through the emergency line of credit. Such measures are really useful.
So the special measures announced today like the on-tap liquidity window for the contact-intensive centres will go a long way. We were already supporting them through various measures but this is a dedicated measure and hopefully it will put a lot more focus on these kinds of sectors and banks would lend more. We are really looking to do that so that these units sustain. MSMEs have to survive this phase of low demand and high impact on individuals. Once you get past this, I hope the investment cycle will also kick in.
On the question of the ECLGS (emergency credit line guarantee) scheme the government had announced a three lakh crore limit and you have already used almost more than Rs 2.5 lakh crore. Is there a very strong case for extending this guarantee?
The government is not feeling shy or falling short. In conversations with us, the government has very clearly indicated that this would be enhanced to the extent and for the time it is necessary. We are quite sure that this would come into being and already the ECLGS 3.0, 4.0, versions are already there. As the total amount was not used, there was no need to enhance it and announce it ahead of time. But as soon as it gets closer to the time and in our feedback, we have been conveying to the government that there is a need to continue for some more time because the second Covid wave came in as a little bit of a surprise to all of us, especially the intensity of it. Therefore, the need for continuing this for some more time is probably there and they are very sympathetic to the idea. I am sure as soon as it reaches the figure of Rs 3 lakh crore or thereabouts, there will be an extension.
RBI has given a go ahead for banks to restructure loans, raising the limit from Rs 25 crore to Rs 50 crore. What kind of support do you expect MSMEs to get with this decision?
The MSME space is under pressure and that is something all of us realise. However, if you look at last year’s example, we should not really be comparing these two waves. Last year’s example showed us that the ECGLS really helped. Rs 250,000 more than that has already been used.
Even for MSMEs, last year, not too many people came in for loan restructuring. What is more important is that those who really have the need and who can just survive through this, that comfort should be there. People need money and they will surely come in and we have put in place all the policies and procedures for the Rs 25-crore window. Of course, the limit has gone up so we will scale it up. It is important for not only people to know that this help is available but for us to also reach out. We are also launching awareness campaigns among the MSME sectors because many of their offices or many of their workplaces could be closed. So we are reaching out proactively to them and saying that this is available and if you need the money please come in.
A mix of the facilities availability and the awareness and the other things which have happened in the economy should help this period to get over. The Covid second wave is already on its way down. In rural India, the real impact of the Covid spread has not been quantified. In my assessment, the economic side of that would not be as bad as what some of the people are saying. The sowing season starts off in July and by that time, hopefully, the wave will be on its way out. There has been record procurement and monsoon is expected to be normal. Rural demand looks crimped but that may not really be the case and it might surprise on the upside. There are positive factors despite all the gloom around us.