Home / News / India /  PM meets financial regulators to discuss China and preparedness for post-covid

Prime minister Narendra Modi on Thursday met financial sector regulators and discussed preparedness to deal with the post-covid world and further measures that the government can take to boost economic recovery while maintaining financial stability in the system.

The meeting was attended by chiefs of Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority of India. Finance minister Nirmala Sitharaman, defence minister Rajnath Singh along with road, transport and highways minister Nitin Garkari were present in the meeting.

“The meeting took stock of the pre-covid and post-covid world and the challenges the regulators may face in coming days," a government official said under condition of anonymity.

A second official said issues related to China were also discussed. India has taken a host of measures to reduce its dependence on China after a tense border standoff left 20 Indian soldiers and an unspecified number of Chinese troops dead. SEBI and finance ministry are currently in discussions to put curbs on portfolio investments from China.

The meeting also comes at a time when government is preparing another round of fiscal stimulus to boost economic recovery at a time rising cases of covid-19 is believed to have plateaued economic recovery. The International Monetary Fund (IMF) on Wednesday said India has space for both fiscal and monetary measures but it needs to quickly contain spread of the pandemic to make economic recovery sustainable. IMF also said while monetizing fiscal deficit may be inevitable, India should chart a credible fiscal consolidation roadmap to ensure regulatory independence.

The IMF has estimated Indian economy to contract by 4.5% in FY21 while Goldman Sachs expects June quarter will be the worst with GDP shrinking by 45% as business activity came to a standstill for at least two months due to stringent lockdown measures.

RBI is considering to allow banks to offer moratorium to stressed sectors such as aviation, hospitality among others though many bankers including HDFC chairman Deepak Parekh has openly opposed extension of the loan moratorium. In its financial stability report, RBI last week said its macro stress tests for credit risk indicate that bad loans could touch 12.5% by March 2021 from 8.5% in March 2020 under baseline scenario. It also warned that if the economic conditions worsen further, this may soar to 14.7% under the very severely stressed scenario.

In the last two weeks, Modi chaired series of meeting with top officials from the finance ministry, Prime Minister’s Economic Advisory Council, government’s policy think tank NITI Aayog as well as the commerce ministry to draw up a strategy and action points towards revival of the Indian economy and the way ahead.

On Wednesday, he met heads of top private and public sector banks, non-bank lenders over a video conference, asking them to scale up lending across the priority sectors such as micro, small and medium enterprises (MSMEs) and agriculture, and relook at its lending practice to ensure stable credit growth.

Banks and businesses have come under immense pressure, amid a sustained rise in infections, and a partial lockdown in some states.

It has been a rough ride for the insurance and pension regulators as well. Due to a large number of covid-19 cases, the insurer regulator had asked all the companies to launch an indemnity-based standard health policy ‘Corona Kavach’ policy for individuals and families. However, the biggest challenge for IRDA has been the lack of uniformity as far as premiums are concerned. The key challenge for PFRDA is to roll out a fresh process to facilitate pension funds for government employees who have just retired. Currently, the process has not gone completely digital.

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