How RBI policy announcement will impact borrowers, consumers and investors

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Updated: Feb 05, 2021 4:22 PM

The RBI once again maintained the status quo in its February 2021 monetary policy review, by sticking to an accommodative stance on the interest rate front and reiterating its commitment to economic growth.

Gross bank credit deployed to MSEs in December 2020 had increased 6.6 per cent to Rs 11.31 lakh crore from Rs 10.61 lakh crore during the year-ago period.

As widely expected, the Reserve Bank of India (RBI) once again maintained the status quo in its February 2021 monetary policy review on Friday, by sticking to an accommodative stance on the interest rate front and reiterating its commitment to economic growth.

Industry experts said in line with evolving macro environment, the RBI policy maintained accommodative stance to support the nascent recovery but hinted at continued normalisation of liquidity. “This likely indicated a gradual inching up of yields in due course but without disrupting the ongoing economic recovery in any way. Investors with asset allocation approach and long-term investment horizon may like to continue to remain invested but should expect elevated volatility in days ahead,” said Mahendra Jajoo, CIO-Fixed Income, Mirae Asset Management India.

“The RBI today kept the rates steady at record low levels as widely expected and reiterated that it will continue to support the recovering economy by ensuring ample rupee liquidity in the banking system. It will boost infrastructure by ensuring the availability of adequate liquidity which will be needed to spur investment in the infrastructure sector. Demand for retail loans, including home loans, is likely to increase as banks have linked retail loans to the RBI’s policy repo rate. Retail investors can now open Gilt or G-Sec accounts with the central bank, a move that will help deepen bond markets in India,” said Dr Chandan Dasgupta, Chairperson-Finance & Banking, Associate Dean (MBA Program), Finance, School of Business Management, SVKM’s NMIMS Deemed to be University.

Here we are taking a look at how the RBI policy announcement will impact borrowers, retail consumers and investors:

Rates Remain Steady: Low interest rates are critical to economic revival. Inflation also needs to remain within target. The RBI governor announced that for the first time since the start of the pandemic, inflation has eased below 6%. This means that interest rates are likely to remain low, with the possibility of banks making marginal revisions in either direction as per their policies.

TLTRO On Tap For NBFCs: In October, banks were allowed to take three-year loans at the repo rate in order to finance stressed sectors. The banks could use this liquidity to invest in corporate bonds, commercial papers, and non-convertible debentures in these sectors. “Now, the RBI has made the TLTRO On Tap facility available to NBFCs in order to ease the availability of credit in these sectors. This could have positive implications for the auto and real estate sectors since NBFCs heavily finance both these sectors and now more credit will be available for both retail customers intending to invest as well as for the manufacturers,” said Adhil Shetty, CEO, BankBazaar.com.

Higher CRR: Last year, the RBI had relaxed CRR norms. Cash Reserve Ratio refers to the minimum percentage of its deposits that any commercial bank has to maintain with the central bank. In light of the pandemic, the CRR was reduced by 100 basis points to 3.00%. It will now be reversed to 4.00% in two phases by May 22.

Buy Government Bonds Directly From RBI: Retail investors will now be able to buy government securities directly from the RBI as opposed to buying them through institutions such as fund houses. This will allow the government to borrow directly from the public who can earn an interest income on the bonds.

Integrated Ombudsman Scheme: The RBI has given strong indications in recent times of its commitment to better grievance redressal system. Currently, the alternate dispute resolution framework consists of three separate Ombudsman schemes for banks, NBFCs, and Digital Transactions.

“With this integration, retail consumers now have one centralised point for grievance redressal for a majority of grievances around retail banking. Having a common Ombudsman scheme means you now have one platform to convey complaints regarding deficiency of services associated with most products and services offered by the bank or NBFC. This will take away the confusion about whom to reach out to for grievance redressal in case of problems especially with any and all forms of digital transactions, from credit and debit cards to mobile and internet banking, and even wallet and UPI transactions,” Shetty said.

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