Page 10 - Banking Finance April 2022

RBI CORNER

dential Norms on Income Recognition, Notably, the consumer price index (CPI) crisis-era measures are coming to an
Asset Classification and Provisioning'. inflation print has remained at el- end, Governor Shaktikanta Das said.
What this means is that if a borrower evated level due to higher-than-ex- While the Ukraine war has created
has two credit facilities, with one of pected vegetable prices in February. new challenges, the central bank will
them (say, a housing loan) being stan- Moreover, inflation is expected to re- seek to cushion its economic fallout by
dard and the other (say, business loan) main at elevated levels due to higher going even beyond the playbook,
non-performing, the lender's entire crude oil price in subsequent months where steps often accompany sunset
exposure to this borrower will be owing to the Russia-Ukraine crisis. clauses after bitter lessons from the
treated as non-performing. This expo- "Nevertheless, we still expect the RBI past.
sure can be upgraded only if the non- to prioritise growth in its April 2022 "Going forward, we will ensure that
performing account is regularised. there is abundant liquidity in the mar-
monetary policy meet as we believe
Banks wanted the RBI to allow them growth is still a bigger concern cur- ket for the credit system to be active,
to treat the two exposures separately rently rather than inflation," said for the credit system to function nor-
due to provisioning implications. Motilal Oswal Financial Services. mally," Das said in his address to the
CII National Council in Mumbai.
In its November 2021 circular, the RBI "We expect inflation in the range of
observed that some lending institu- 5.2-5.4 % YoY in FY22." This was his first in-person interaction
tions upgrade accounts classified as with the industry since the start of the
NPAs to 'standard' asset category upon Earlier this month, CPI inflation came Covid-19 pandemic.
payment of only interest overdues and in at an eight-month high of 6.1 % YoY Das was answering questions from in-
partial overdues. in February 2022. dustry captains such as Uday Kotak,
Besides, food inflation came in at a 15- Keki Mistry and Rishad Premji, who
In order to avoid any ambiguity in this
regard, the central bank had clarified month high of 5.8 % YoY in February attended the meeting as members of
that loan accounts classified as NPAs 2022 versus 5.4 % YoY a month ago. the CII council. "There will be abun-
may be upgraded as 'standard' assets "Within food, vegetables primarily dant liquidity to meet the productive
only if entire arrears of interest and caused the spike in inflation as exclud- needs of the economy. All our schemes
principal are paid by the borrower. ing vegetables, CPI came in at 6.1 % have a sunset clause," Das said. "We
With regard to upgradation of ac- YoY similar to the level seen in January will ensure the whole process, the in-
jection of liquidity as well as the with-
counts classified as NPA due to restruc- 2022."
drawal, is very non-disruptive."
turing, non-achievement of date of "Other items such as cereals and prod-
commencement of commercial opera- ucts, meat and fish, spices, and sugar
tions (DCCO), the instructions as speci- and confectionary that constitute 17 % RBI seen holding rates
fied for such cases shall continue to be weight in CPI index also contributed to even as retail prices top
applicable. higher inflation."
inflation target
In its clarification, the RBI said the 'pre- On the contrary, fuel and power infla-
vious 90 days period' for determination tion came in at a 10-month low of 8.7 Consumer prices rising above the Re-
of 'out of order' status of a Cash Credit % YoY in February 2022. serve Bank of India's inflation target for
/Overdraft account shall be inclusive of Furthermore, core inflation stood at the second straight month may have
the day for which the day-end process raised fears of a policy rate increase, but
is being run. 6.2% YoY for the fifth consecutive many economists expect the central
month in February 2022. bank to maintain its accommodative
stance to support economic recovery.
RBI expected to prioritise
RBI will ensure enough li- They cited the easing of commodity
growth
quidity to support busi- prices from their peaks and the
The Reserve Bank of India (RBI) is ex- RBI's high inflation projections for the
pected to prioritise growth over infla- ness current quarter to insist that a policy
tionary fears in its April, 2022 policy RBI will ensure abundant liquidity to rate hike at this juncture appears re-
meet. support business even as Mint Road's mote. T

10 | 2022 | APRIL | BANKING FINANCE