Keep Economy Going During Virus Battle

Stimulus packages are not enough. We need measures that ensure recovery of vulnerable communities that are losing jobs

- Errol D’souza/Astha Agarwalla

A day after the Finance Minister announced the Pradhan Mantri Garib Kalyan Yojana worth ₹1.70 lakh crore, the RBI joined in with a reduction in the repo rate and other measures to ease financial stress and expand liquidity in the market.

The RBI Governor pronounced that the banking system is safe and asked us not to worry about our bank deposits. This is the third shock to the banking sector in the recent past. The first was the failure of YES Bank where a rescue plan involving a range of Indian banks was put together to mitigate the vulnerability on the financial system. The second was the Supreme Court ruling directing telecom operators to pay crores in dues to the government. A panic selling in bank stocks with heavy exposure to the telecom sector followed. The third shock is the virus outbreak and the lockdown that will result in lower corporate growth and an increase in losses.

The lockdown foregrounds the prospect of lost jobs and the closure of small and informal businesses. With no economic activity and forgone cash flows, banks’ viability is in jeopardy. A moratorium of three months on EMIs will come as relief for those with loans outstanding. But for the banks, it will mean weaker balance sheet positions.