The lockdown is not in the hands of the RBI but it has done what it could do the best – keep the NBFCs and banks alive. The measures announced today will not arrest the economic fall but what RBI has tried to do is assure the lenders that it will continue to do what is required, as liquidity is what will matter the most once lockdown is lifted. RBI is trying to ensure that the liquidity status, post lockdown, remains status quo; to kick start the economy, the stimulus will come from the Govt.

The RBI’s moves made today and earlier are all there to ensure that once economic activity starts, there will be enough liquidity with the banks and NBFCs to help businesses get back to do their business. Thus at this point of time, when we are sitting at home, these moves might not make much sense but they are excellent when lockdown is lifted. RBI today, with these measures is ensuring that there is no complete collapse.

The bar on dividend payout by banks to a good move; its in place for now and the RBI said that it will be reviewed later. This has been done to ensure that there is sufficient liquidity with the banks. With respect to lending to NBFCs, one will need to see how the banks respond but given the extraordinary circumstances, banks might be willing to forego their risk averseness and lend.

What we also understand is that this is an evolving situation and the Governor time and again said that the RBI will do “Whatever it takes.” So this is not the last; we are sure to see more measures, depending on the circumstances.

With these measures, we feel that cash flows will improve after the lockdown ends and there is a good enough gap to ensure that borrowers repay. Yes, there is the risk of NPAs going up after the 180-day period but that will have to be dealt with later; getting the economy going after lockdown is priority number one.

The main objective of the measures announced today:

1: Ease the liquidity situation with NBFCs and banks

2: Cut in reverse repo rates should push banks to lend at lower rates

3: Dividend payouts by banks and cooperatives on hold – deferment and not cancellation

4: Smaller players will also now get access to liquidity

For a complete look at RBI announcements made today: https://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=3853