While Opposition parties of disparate ideologies on Monday flocked together to mount a concerted attack on the government in Parliament on the people’s woes due to the scrapping of R500 and R1,000 notes, the government and the Reserve Bank of India (RBI) continued to take incremental steps to address the concerns of various constituencies, especially small borrowers and farmers.
In a move to help small borrowers, the RBI allowed banks, non-banking financial companies (NBFCs) including micro financial institutions (MFIs) and district central co-operative banks (DCCBs) to retain ‘standard’ asset classification on loans up to R1 crore for another 60 days from the date they would have otherwise turned non-performing.
The forbearance will apply to home, agriculture and working capital loans among others and dues payable between November 1 and December 31.
Bank of America Merrill Lynch (BofA-ML) analyst said almost all of vehicle finance and lot of the home finance businesses, which sit with non-banks will see a major relief.
“Small businesses can use this time to realign their business model and move away from a more cash-dependent model to one where money flows through through the banking channel,” said Karthik Srinivasan, senior vice-president, ICRA.
Separately, the government permitted farmers to use old R500 notes for purchasing seeds from any state or central government outlets and agriculture universities. It also asked banks to provide resources to cooperative institutions with which they are associated to meet cash requirements of the farm sector during the ongoing rabi season.
As reported by FE earlier, sowing of rabi crops has declined marginally from last year, with the last few days witnessing major retardation in case of wheat, the principal rabi crop.
As per the ministry of agriculture data, wheat sowing, which was 38% higher than the year-ago period until November 11, has since lost momentum, and the annual growth was flattish as on last Friday.
The central bank also notified an earlier government decision to allow farmers to draw up to R25,000 a week in cash from their loan (including Kisan Credit Card limit) or deposit accounts subject to their accounts being compliant with the extant KYC norms. Also, traders registered with APMC markets/mandis can now withdraw in cash R50,000 in a week from their current accounts.
“We had a discussion with RBI, Nabard and all public sector banks and the only item for discussion was with regard to transfer of resources to rural areas so that they will reach the farmers since the sowing season for rabi is on and a lot of this will happen through the cooperative itself,” finance minister Arun Jaitley said. It is estimated that about R5,000 crore is needed by the farm sector on a weekly basis for next few weeks as this is the peak rabi sowing season. Besides, the government has directed banks to waive all transaction charges made through RuPay debit card.
While some economists saw “radical cut” interest rates due to the cash crunch which presumably cooled inflation and clearly impeded economic activities in the short term, others prognosticated significant reduction in GDP growth rate for FY17. The demonetisation move is expected to be precursor to more such bold steps including deep cuts in income tax rates, some analysts said. Pronab Sen, former chairman of the National Statistical Commission told FE that demonetisation could knock 40 bps off the GDP in 2016-17.
In a meeting with commerce minister Nirmala Sitharaman, exporters sought an up to 10-fold increase in the withdrawal limit to R5 lakh a week. Exporters in certain sectors said the low cash withdrawal limit has forced some of them to close units for a week and some of them cut production from 70-100% of capacity earlier to about 35-40% now. Sitharaman assured them that she would convey their concerns to the finance ministry for appropriate action.
Both houses of Parliament were adjourned on Monday after the question hour as the Opposition raised a din. Leaders of Congress, Trinamool Congress, JD(U), BSP, CPI(M), CPI, NCP, RJD, JMM and DMK had held a meeting earlier in the day to forge a common plan of action on the demonetisation issue. At the meeting, which was attended by Congress vice president Rahul Gandhi, it was decided that these parties will continue to press for an adjournment motion in Lok Sabha and a debate under a rule which entails voting.