Stocks fall as RBI’S words of caution spook investors
MULTIPLE HURDLES Governor Shaktikanta Das said risks to growth are acute
nMUMBAI:THE Indian stock market fell after the Reserve Bank of India’s (RBI) surprise monetary policy review on Friday, with investors wary after central bank governor Shaktikanta Das highlighted the macroeconomic impact of the covid-19 outbreak, adding that “risks to growth were acute”. Weakness in global markets also weighed on sentiment. The BSE Sensex ended at 30,672.59, down 260.31 points, or 0.84%. The Nifty closed at 9,039.25, down 67 points, or 0.74%.
The central bank’s decision to refrain from estimating GDP growth is a reflection of the complexity and the limitations of the present growth models, said analysts. However, a key takeaway was that banking sector stress will continue, analysts said.
“The commentary of the governor’s speech underpins the low prospects of a V-shaped recovery. The commentary indicates that the stress in the economy is likely to continue. We also believe the government should provide subvention on existing loans or bear some cost of the haircut of existing loans. This will ensure that banks have confidence in lending to lower-rated entities or individuals,” said Abhimanyu Sofat, head, research, IIFL Securities.
There is also a growing worry that transmission of lower interest rates is unlikely to be over soon, as the overall financial condition remains compromised, with the economy grappling with supply-related issues.
Banking stocks were the worst hit on fears that RBI’S extension of loan moratorium by three months will burden the balance sheets of banks. Sovereign bonds saw a jump after the rate cuts. Yield on the most traded 2029 gilts dropped 7 basis points to 5.96% at close. The rupee lost 0.44% to end at 75.96 against the dollar.
nMUMBAI: The Reserve Bank of India’s (RBI) extension on Friday of the ongoing loan moratorium by another three months will take care of cashflow disruptions for borrowers despite the absence of a onetime debt recast relief, said Rajnish Kumar, chairman, State Bank of India (SBI).
Kumar’s statement came soon after RBI governor Shaktikanta Das announced a 40-basis point (bps) repo rate cut and extended several regulatory measures in the wake of the pandemic. The moratorium is being further extended from June 1 to August 31, in view of the extension of the lockdown and continuing disruptions, Das said. The earlier moratorium ends on May 31.
“Our tendency has become that whatever has been given, just take it and ignore it and then start talking about what has not been done,” Kumar said when asked about the RBI not heeding lenders’ request for a one-time debt recast. The Indian Banks’ Association (IBA), of which Kumar is the chairman, had sought a onetime debt restructuring relief.
The moratorium itself will take care of cash-flow disruptions, now that there is time till August 31, Kumar said.
“When we talk about onetime restructuring, it requires deeper analysis. The recast is required for any enterprise if they have incurred losses and then we have to work out a plan to fund those losses,” said Kumar. If borrowers face cashflow problems even after August 31, banks will have to deal with the situation, he said.
“I would not be obsessed with a one-time recast at this point of time when we still have time up to August 31. It will depend on how various sectors of the economy respond post the lifting of the lockdown in a phased manner. We will have to assess the need and if there is a need for one-time restructuring, we can still do it under the June 7 circular,” said Kumar.
RBI’S June 7, 2019 circular on stressed assets allows banks to do a debt recast within six months of the review period, he said. According to the circular, a 30-day review period begins after a borrower defaults on his repayments. However, the government has recently said there will be no fresh insolvency cases for up to a year now, a move that bankers have said will disrupt recoveries.