The Reserve Bank of India’s selection in its February monetary policy meet to hold the essential interest prices was considerably anticipated and as per the industry’s expectations. According to business authorities, the monetary policy focused on 3 elements – guaranteeing liquidity, road map to meet the borrowing plan for FY22 and supporting financial development by such as NBFCs and new MSMEs for much easier credit provide.
“The MPC decision to leave the repo rate unchanged and continue with its accommodative policy stance is as per our expectations and should aid the government efforts towards economic revival. However, I feel the main highlights of this MPC meeting outcome are the decisions to allow retail investors to open Gilt accounts with the RBI and allow banks to deduct credit sanctioned to new MSME loan applicants from their Net Demand and Time Liabilities (NDTL) while calculating their CRR,” stated Naveen Kukreja, CEO & Co-founder, Paisabazaar.com.
Providing on the net access to retail investors to invest in each main and secondary government securities (G-Sec) markets will additional encourage and deepen retail investor participation in this segment. Retail investors will get a new window, in addition to the current modest savings schemes, to straight invest in fixed revenue instruments with sovereign assure. This need to also substantially enhance the investor base for the government to raise sources for financing its improved budgetary spending.
Commenting on the RBI move to permit retail investors to open Gilt accounts with the apex bank, Nimish Shah, Chief Investment Officer – Listed Investments, Waterfield Advisors, nevertheless, stated, “The initiative to increase retail participation in G-Sec was put in motion many years ago, but unfortunately did not yield any result. We have not heard of retail investors investing in G-Sec. The efficacy of this move also depends on the platform they are creating from an ease of transaction and low cost perspective. Given the taxable nature of coupon income, it may not find substantial allocation in an investor’s portfolio. Most fixed investments are in mutual fund growth schemes with 3 year perspective so as to take advantage of LTCG.”
Also, AAA-rated corporate and PSU bonds give .5% to 1% superior yield than G-Secs. Net of tax, an FD or a Corporate Bond Fund might also give superior or equivalent returns. “The yield on tax-free bonds is around 4.5%, which is better than a sub 4% net of tax return on a 3/5 year G-Sec. While a promising move, a lot will depend on the platform and parallel investment opportunities available,” he added.
It might be noted that the financial disruptions triggered by the Covid pandemic had led banks to grow to be particularly conservative whilst sanctioning loans to ‘new to credit’ loan applicants and reduced revenue groups. “This increased risk averseness had an adverse impact on the credit access for these segments. The decision to allow banks to deduct credit sanctioned to new MSME loan applicants from their NDTL while calculating their CRR will incentivise banks to improve access to institutional credit for the new MSME borrowers and can even reduce their borrowing cost as well. I expect the RBI to extend this provision to bank credit sanctioned to ‘new to credit’ individual borrowers and those in the lower income groups as well in the near future,” stated Kukreja.
Moreover, the RBI selection to announce an integrated and centralised ombudsmen scheme for banks, NBFCs and non-bank digital payments service providers need to simplify the grievance resolution mechanisms for the customers. Similarly, the selection to set up a centralised 24/7 helpline for queries connected to digital payment goods will improve customer trust and self-confidence in digital payment systems and, thereby, assistance enhance the acceptance and penetration of digital payment.