The effect of COVID-19 has sent out shock waves across the world and India is experiencing its heat on the GDP and monetary deficit. Both the demand sectors and the supply chain are bearing the brunt of this adverse effect and we are expecting a deceleration by 2.8% in FY21. If this condition prolongs, the economic result would be worse than these range of predictions. Industries and institutions could experience limited credit access and liquidity strain that could lead to financial debts and resource layoffs. The central banks around the world are proactively taking measures to bring stability and manifest commitment in making use of every source possible.
The Role of RBI in fixing economy
To be able to prepare ourselves for the worst, it is important to focus on not just fiscal policies but also on social policies. Banks are taking initiatives to prevent bankruptcy of enterprises and get ready for a rebound. The World bank approved a sum of $1 billion and released the first tranche for the health sector in India. Also, the Reserve Bank of India structured a series of measures to restore the beleaguered economy that includes liquidity booster service, cutting down of repo rate, TLTRO, short-term funds, reducing LCR, increasing digitalization and many more.
Rise in WMA limit: Short- Term funding
We can see that banks play a very crucial role to throttle back in reviving the worst economic downturn ever. The RBI increased the short-term borrowing capacity by over 65% for the central government relieving the fear of excessive interest rates and the strain on bond markets through WMA. It has also eased up the borrowing norms and increasing liquidity into markets to balance the investors risk aversion. These raise in WMA limits states the fact that banks are helping the markets against large disruption considering the present tension. Though it is short-term, the government would come up with extra borrowing and liquidity at a stage. These aids would facilitate businesses to meet mismatches in revenue and tide over the current situation.
Slashing reverse repo rate
As the banks eased the rules for frozen dividend payments and has cut reverse repo rate by 25 bps to 3.75% under Liquidity Adjustment Facility (LAF), we can witness an expansion in liquidity across markets as an attempt to temper into normalcy. Through this, the banks can help business to withstand any temporary closure of liability market and to regulate it by lending funds for sustenance. Further, this rate cutting encourages banks to lend more money to the productive sectors and refrain from dumping funds with RBI. Target long term repo operations (TLTRO) with an amount of Rs.50,000 Cr is allocated to the support NBFCs, MFIs and small to mid-sized corporates in different tranches. This reduction in repo rate would benefit in meeting the needs of sectoral credits, refinancing and other finance companies.
Additional liquidity measures
Banking sectors are taking measures to mobilize the support system on an everyday basis with business continuity plans, contingency plans. Also, it has reached out to financial regulators to facilitate capital requirements besides easing loan allocation and cutting interest rates adhering to its center’s policies and regulations. The RBI reduced liquidity coverage ratio (LCR) from 100% to 80% to survive the stress by providing short-term resilience to any liquidity disturbance thereby, ensuring liquidity sufficiency. When there is enough flow of liquid assets without impediments, it becomes easy to obtain funds through them.
Pushing banks to digitalization
With the on-going pandemic tension, we can observe that the digital channels are the unanimous option to deliver majority of transactions and services. The pandemic has significantly reduced offline transactions whilst the government is urging people to embrace digital operations as physical currencies could act as carriers and transmitters of the virus. Thereby, we are seeing a 42% increase in the number of people using digital payments fairly which means the present situation has brought it not-so-tech savy crowd closer to the digital environment. Even after the settling of corona crisis, people would still prefer going cashless with QR code based payments, internet banking, touch-based cards, Gpay, PhonePe, etc concerning the aftermath of the pandemic.
Sustaining with RPA
In order to sustain in this ecosystem, banks shall start to accelerate the mobile transaction mechanism, initiating new onboarding capabilities, increasing limits at POS, establishing updates regulation, improving security to manage money online with regulators. Banks adopting RPA improves agility- by automating manual and repetitive tasks such as e-mail responders, support system and account flexibility. Process Automation ensures lesser human intervention thereby reducing the risk of human errors and accelerating processes. Communication and transfer of huge volumes of data from legacy system to new models become seamless with shorter turnaround time per request- for a customer-centric approach. Thus, we can say the RPA brings down labour costs and improves operational efficiency. This is just not all, RPA can tracks customer details in no time and addresses their query quickly reducing waiting period. Once RPA resolves the lower priority tasks, it automatically finds time and space for the employees to focus on high priority tasks and other innovative ideas to improve customer relation.
Conclusion: Embracing the new normal
Considering the unprecedented times that we are in today, it is inspiriting to see RBI taking steps to these issues at war footing. We believe these measures to pump in the required liquidity, bring about sufficient credit flow and extend its hand to provide flexibility in practicing regulatory forbearance. Banks embracing technologies like RPA allow customers to quickly transact or operate their account without having to wait for physical approval. Also, operating with agile methodology means supporting customers at any point during crisis by responding to their redefined expectations, currently, via digital channels. From being a just a support system, technology will now take the frontline in banking sector. Automation will rule over the banking ecosystem and the digital tools will become inevitable pertinent in banking and finance sectors and shall outlast the pandemic. People and businesses will now perceive this as the new normal of the future.
Views expressed in the article are the personal opinion of Mahalakshmi Santaram, Head of Client Engagement Solutions and Management, Banking and Financial Services, Aspire Systems.