Nimble-footed Reserve Bank of India shows Bangladesh Bank the way

Collected
Adversity brings out the very best in man, William Shakespeare once said.

And just how that the Reserve Bank of India, the neighbouring country's central bank, has increased to the titanic challenges brought on, in short notice, by the global coronavirus pandemic, evokes the line compiled by the fantastic English dramatist some 400 years ago.

Captained by Shaktikanta Das, the RBI's contingency planning started immediately after the outbreak of the novel virus in China in January, because of this of which its actions are now seeming dynamic.

To prevent coronavirus from creating much disruption to India's economic climate, the RBI has segregated 150 staff of its critical departments such as for example debt and reserve management and monetary operations. They have been put at in a hotel in the vicinity of the primary data centre.

Although the Indian government is yet to declare its full financial package to fight the monetary fallout, the RBI has generated the bottom for them already.

On March 27, Das unveiled a bunch of financial programmes to inject a complete of Rs 374,000 crore into the economic climate, including slashing the policy repo rate by 75 basis points to 4.4 %.

The auction of long-term repo operation (LTRO) of 3-year papers to the tune of Rs 100,000 at a floating rate will be conducted too.

Cash reserve ratio (CRR) was reduced 100 basis points to 3 % for just one year -- a move that released Rs 137,000 crore over the banking system.

Accommodation under the Marginal Standing Facility (MSF) has been increased from 2 % of statutory liquidity ratio to 3 % until June 30 release a Rs 1.37 lakh crore.

MSF is a window for banks to borrow from the RBI within an emergency when inter-bank liquidity dries up completely.

Indianbanks are also permitted to allow a three-month moratorium on repayment of term loan instalments.

Then on April 17, Das unveiled a second set of measures to make sure better credit flow and permit normal functioning of the financial markets.

With the view to conserving cash, he asked banks and co-operative banks not to make any dividends for the financial year ending March.

On March 26, the Indian government announced a relief package of Rs 170,000 crore for all those hit the hardest by the coronavirus-induced lockdown, along with protection plans for frontline medical personnel.

And it is poised to declare a sizable financial package to the tune of Rs 9-10 trillion because of its professional and service sector within a day or two. However the RBI's has recently taken its preparation because of this.

On the other hand, the Bangladesh Bank just appears leaden-footed, with its focus on softening the fallout from the pandemic didn't start until the middle of March, following the announcement of the first confirmed cases of COVID-19.

Although it has taken on several programmes, its moves seem to be reactionary instead of anticipatory.

Within the move, the BB cleaved CRR by 150 basis points to 4 % to inject about Tk 19,400 crore in to the economy.

To create funds cheaper for banks, it slashed the policy or repurchase agreement rate by 75 basis points to 5.25 %.

The BB also announced quantitative easing and increased the ceiling for loan-deposit ratio.

As per the federal government announcement, the BB asked banks to give out loans amounting Tk 50,000 crore to large, medium and small enterprises and service sector at less interest rate.

It also introduced a pre-shipment credit refinance scheme involving Tk 5,000 crore at a minimal interest rate. A brand new refinance scheme of Tk 5,000 crore for businesses of the farm sector has been introduced, too.

It has widened its export development fund from $3.5 billion to $5 billion and asked banks not to consider borrowers as defaulters for failure to settle instalments until June 30.

Banks must disburse the lion's share of the stimulus package from their own sources. But, they already are mired in cash crunch because of the huge cash withdrawal in recent days.

And this is where in fact the BB's role has been found wanting. It has yet to provide any roadmap on how to supply the mandatory money to both government and the banking sector to implement the rescue packages.

Poor revenue collection has recently forced the government to exceed its twelve-monthly borrowing limit from banking sources seven-and-a-half months in to the fiscal year.

Although the central bank has declared to get back T-bills and bonds, it has yet to finalise any plan about how much securities will be purchased.

The Indian banks are certain to get term loans in the kind of LTRO, whose repayment duration is 3 years. But such a mechanism is absent in Bangladesh.

Bangladeshi banks must pay back the BB fund, taken using the repo method, within 28 days.

So, lenders may face a fund mismatch in the times ahead.

There is absolutely no denying that the GDP this fiscal year and twelve months will come crashing down by as much as 500 basis points to 2-3 %, meaning that the BB will need to inject a large amount of cash to keep the demand level up.

If the BB fails to operate the amount of money management properly, inflation could be fuelled after the lockdown is lifted.

The RBI has completed all tasks before the Indian government declared the bailout package, but the BB has issued most of the notices according to the government's instruction.

A great number of BB officials will work round-the-clock, but there's been no coordination among different departments to draw up plans about how to soften the landing.

"The number of monetary authorities in the BB is leaner than in the RBI. But we should use our limited workforce properly to manage the problem," said a BB official requesting anonymity when informed of the neighbouring country's banking regulator's proactive deportment.

Perhaps, the BB can follow the RBI's lead, he added.
Source: https://www.thedailystar.net

Tags :

Share this news on:

Previous Story

Trending Topics

Archive