Pandemic won’t deliver a big shock to banking system: Principal economic advisor Sanjeev Sanyal

4 weeks ago 5
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He said as the government was opening up more and more avenues for private investments. The booming stock markets could be a source for meeting the financing needs through more equity participation.

“The IBC (Indian Bankruptcy Code) process related cases are getting solved. The NCLT system has continued to function. The banking channels mostly remained muted for financing. Some NPAs will pop up but the shock will be smaller than feared,” Sanyal said at a session of the Merchants' Chamber of Commerce and Industry.

The Indian banking system would not be hit by the pandemic as much as feared by many Sanjeev Sanyal, principal economic advisor, said.

“The IBC (Indian Bankruptcy Code) process related cases are getting solved. The NCLT system has continued to function. The banking channels mostly remained muted for financing. Some NPAs will pop up but the shock will be smaller than feared,” Sanyal said at a session of the Merchants’ Chamber of Commerce and Industry.

He said as the government was opening up more and more avenues for private investments. The booming stock markets could be a source for meeting the financing needs through more equity participation.

The capital expenditure, which the government started ramping up from October last year onwards to create more assets, has resulted in a strong economic recovery for the January-March quarter last fiscal. Sanyal said the FY22 Budget focussed on expanding the economy and that’s what the government is implementing.

The second wave of Covid has a deeper psychological impact on people with the number of deaths being significantly higher than the first wave. But a national lockdown would have been “blunt and costlier and so lockdown by the states have given a headroom to deal with the economy more efficiently”. Response to the situation was more adequate through faster creation of the required health infrastructure, though the country is still dealing with a lot of uncertainties, Sanyal said.

While he refrained from commenting on the preparedness of a probable third wave, he said a better surveillance and a situational awareness was required rather than prejudging how the economy would behave in case of a third wave. Though there could be many possibilities, the government at present was viewing three possibilities depending on which the economy would behave.

The first possibility would be to remove all restrictions and lockdown and get into economic activities. But this may not be sustainable while pumping up the economy a little and then again slowing it down. The second possibility is of the economy coming back roaring since exports, agriculture, construction, non-contract services and others alike are doing well and growing. But concern would shift from growth to inflation. The third possibility is some parts of the economy would become red hot and inflationary, and some parts like the hospitality industry and tourism may not recover.

“The government would be required to give a targeted response to the third possibility, while the second possibility would require a generalised response,” Sanyal said, adding that avoiding switching off and switching on the economy was the need of the hour and faster vaccination would pave the way to a quicker economic recovery.

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