The proposed reliefs provided in the statements are:

• Reduction in policy repo rate under LAF by 75 basis points to 4.40% from 5.15%
• Reduction in CRR to 3% from 4%
• Reduction in bank rate and rate on MSF i.e. Marginal Standing Facility reduced to 4.65% from 5.40%
• Auction of targeted long term repos operations of ₹ 1 trillion. The liquidity expected to be released to the banks is to be utilised for targeted lending through commercial paper, bonds and nonconvertible debentures of creditworthy corporates.
• Reduction in reverse repo rate under liquidity adjustment facility by 90 basis points to 4%
• Deferment of implementation of net stable funding ratio NSFR till October 1, 2020 instead of April 1, 2020.
• Deferment of last tranche of capital convert conservation buffer till September 30, 2020.
• Relief in debt servicing by providing moratorium on term loans outstanding as of March 1, 2020 by 3 months that is effectively shifting the tenor due dates by three months. Further, working capital debt facility that is required to be serviced by payment of interest every month has been deferred by three months. None of these measures would result in downgrading of the asset classification in the books of the banks and in the records of the credit information companies.
• Banks and lending institutions have been advised that they may re-calculate the drawing power by reducing margins and or reassessing the working capital cycle of their constituents without impacting their asset classification.

The statements have identified risks, namely:

1. COVID-19 pandemic has led to a global recession (the decoupling myth prior to global financial crisis has since long been busted. The contagion effect is now felt by all). Only the US and China remain inter-dependent as well as globally connected. As such they are joint actions may have a severe impact on the rest of the world.
2. Financial markets have become volatile resulting in wealth destruction in Equity markets in the advanced economies and also in the emerging markets and developing economies.
3. Brent crude is currently trading at $25 per barrel due to price war amongst some of the producing countries and lack of demand.
4. Central banks and governments are in war mode towards easing financial conditions to avoid a demand collapse and prevent financial markets from freezing up due to illiquidity.
5. On the domestic front, private final consumption and capital formation are in contraction mode, with only small positives seen in the fields of agriculture, manufacturing and electricity demand and that too only for short periods. COVID-19 pandemic has severely affected the services sector mainly that are linked with tourism and all allied activities.
6. Macroeconomic risks both on the demand and supply sides brought on by the pandemic could be severe. Governments globally have responded with massive fiscal measures (however, India lacks enough fiscal headroom), including targeted health services support. Still Indian government has announced a package of ₹.1.7 trillion mainly as cash transfer. However, allocation to the health infrastructure is missing; probably on the assumption that the current health infrastructure is adequate, may be grossly flawed.

Some suggestions:

1. The debt servicing relief provided in the policy statements of RBI (for 3 months) may be inadequate. Further, banks have to liberally assess working capital requirements and security margin. As a thumb rule, the working capital cycle should be straightaway assumed to have doubled considering the already existing slowdown in Indian economy and also the impact of Covid-19 pandemic and due to the lockdown to curtail its spread. The selection criteria for this should be liberal and aimed to cover all those entities in the mSME segment that have survived the demonetisation and GST implementation. I feel that is should not be linked with individual assessment by banks at this juncture, due to the associated ills of individual biases of the credit officials, time taken in completing the exercise, etc. which may defeat the entire exercise.
2. The margin requirement for security should be relaxed by at least a factor of 1.25x to a maximum of 1.4x from the existing security margin for individual borrowers (in other words, if the bank was providing loans to the extent of rupees X on a security value of Y, it should now provide loan of 1.25X or 1.4X depending on the internal assessment of the borrowers and its past track records). COVID-19 in fact provides an opportunity to both banks and the borrowers to clean up their books and become straight in real terms. All inflated receivables and inventories, by borrowers can now be cleaned up. Forbearance should be practised in letter and spirit.
3. On the fiscal front, all non-essential allocation and increase in pay to government bodies and departments / semi-government organizations / public sector organisations should be reduced by 10% to 25%. This is normally done in private sector and could easily be followed by the public sector has the disparity in the income levels in the public and private sector is not much anymore.
4. All private industries or initiatives involved in development of drugs, vaccines, hospital equipments, protective gears, etc. to fight COVID-19 be given tax holidays or accelerated depreciation. Further, investment allowance deduction can be provided for setting up hospitals and associated health infrastructure.