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India must find ways to kickstart investment: RBI

It further highlighted that there is an urgent need to kickstart investments to make sure the economic recovery, which is getting stronger with every passing month, is sustainable.

Published: 22nd January 2021 09:55 AM  |   Last Updated: 22nd January 2021 09:55 AM   |  A+A-

RBI

Reserve Bank of India (File photo| PTI)

By Express News Service

NEW DELHI:  Ahead of the Union Budget 2021, the Reserve Bank of India (RBI) in its monthly bulletin on Thursday said that capital infusion and “innovative” ways of dealing with loan delinquencies will occupy policy attention in order to ensure that finance greases the wheels of growth on a durable basis.

It further highlighted that there is an urgent need to kickstart investments to make sure the economic recovery, which is getting stronger with every passing month, is sustainable.

“India must look for ways in which cash sitting idly in balance sheets of corporations and banks and reverse repo balances with the Reserve Bank finds their way into credit to productive sectors and into real spending on investment activity before it imposes a  persistent deflationary weight on real activity,” RBI said. Notwithstanding the increased demand and relatively higher manufacturing activity in the December quarter, private investments have not picked up in a big way with banks shying away from lending and companies continuing to remain risk-averse.

In fact, cash-strapped governments have squeezed capex more than the private sector. Compared to the last quarter, private sector new projects have risen by 8 per cent in Q3, while the same fell by 71 per cent in the government sector. On its outlook for 2021, the central bank said that India’s GDP is within the striking distance of attaining positive growth and that the shape of the recovery will be V-shape (where ‘V’ stands for vaccine). Indian economy is projected to contract by 7.7 percent in FY21, the first advance estimates of GDP showed.

RBI, in December, had said the growth could turn positive in the third quarter in FY21.In a separate study on small finance banks (SFBs), the RBI paper said these banks — among the latest entrants in India’s financial system — have witnessed a  rapid growth in their branch network and asset base while  maintaining healthy asset quality and generating high return on assets.

“SFBs have been reasonably successful in reaching out to under-served sectors,  such  as  the  micro,  small and medium enterprises, and have an impressive coverage of  borrowers with small credit needs,” noted Richa Saraf and Pallavi Chavan from the RBI’s Department of Supervision.


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