Nimble-footed Reserve Bank of India shows Bangladesh Bank the way
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 induced, in a nutshell notice, by the global coronavirus pandemic, evokes the line written by the fantastic English dramatist some 400 years back.
Captained by Shaktikanta Das, the RBI's contingency planning commenced soon after the outbreak of the novel virus in China in January, therefore which its actions are actually seeming dynamic.
To avoid coronavirus from triggering 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 already been put at in a hotel near the principal data centre.
Although the Indian government is yet to declare its full financial package to fight the financial fallout, the RBI has created the ground for them already.
On March 27, Das unveiled a bunch of financial programmes to inject a complete of Rs 374,000 crore in to 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 per cent 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 have also been 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 ensure better credit flow and permit normal functioning of the financial markets.
With the view to conserving cash, he asked banks and co-operative banks never 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 those hit the hardest by the coronavirus-induced lockdown, along with insurance cover for frontline medical personnel.
In fact it is poised to declare a large financial package to the tune of Rs 9-10 trillion for its industrial and service sector within a day or two. But the RBI's has already taken its preparation because of this.
On the other hand, the Bangladesh Bank just seems leaden-footed, with its work on softening the fallout from the pandemic did not start before middle of March, after the announcement of the first confirmed cases of COVID-19.
Although it has taken on several programmes, its moves appear reactionary instead of anticipatory.
As part of the move, the BB cleaved CRR by 150 basis points to 4 per cent 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 per cent.
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 provide 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 never 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 as a result of huge cash withdrawal in recent days.
And this is where in fact the BB's role has been found wanting. It has yet to supply any roadmap 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 federal government to exceed its gross annual borrowing limit from banking sources seven-and-a-half months in to the fiscal year.
Although the central bank has declared to buy back T-bills and bonds, it has yet to finalise any plan on how much securities will be purchased.
The Indian banks will get term loans in the type of LTRO, whose repayment duration is 3 years. But such a mechanism is absent in Bangladesh.
Bangladeshi banks must repay 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 should come crashing down by as much as 500 basis points to 2-3 %, meaning that the BB will need to inject a large sum of money to keep the demand level up.
If the BB fails to operate the amount of money management properly, inflation could be fuelled once the lockdown is lifted.
The RBI has completed all tasks prior to the Indian government declared the bailout package, however 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 draft plans on how to soften the landing.
"The quantity of monetary experts in the BB is leaner than in the RBI. But we have to use our limited workforce properly to control 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.
