Nimble-footed Reserve Bank of India shows Bangladesh Bank the way

Adversity brings out the best in man, William Shakespeare once said.

And the way that the Reserve Bank of India, the neighbouring country's central bank, has risen to the titanic challenges brought on, in short notice, by the global coronavirus pandemic, evokes the line written by the great English dramatist some 400 years ago.

Captained by Shaktikanta Das, the RBI's contingency planning began soon after the outbreak of the novel virus in China in January, as a result of which its actions are now seeming dynamic.

To prevent coronavirus from causing much disruption to India's financial system, the RBI has segregated 150 staff of its critical departments such as debt and reserve management and monetary operations. They have been put at in a hotel in the vicinity of the primary data centre.

Although the Indian government is yet to declare its full financial package to fight the economic fallout, the RBI has created the ground for them already.

On March 27, Das unveiled a host of financial programmes to inject a total of Rs 374,000 crore into the financial system, including slashing the policy repo rate by 75 basis points to 4.4 per cent.

The auction of long-term repo operation (LTRO) of 3-year papers to the tune of Rs 100,000 at a floating rate will be conducted too.

Cash reserve ratio (CRR) was reduced 100 basis points to 3 per cent for one year -- a move that released Rs 137,000 crore across the banking system.

Accommodation under the Marginal Standing Facility (MSF) has been increased from 2 per cent of statutory liquidity ratio to 3 per cent until June 30 to release Rs 1.37 lakh crore.

MSF is a window for banks to borrow from the RBI in an emergency when inter-bank liquidity dries up completely.

Indianbanks have also been permitted to allow a three-month moratorium on repayment of term loan instalments.

Then on April 17, Das unveiled a second set of measures to ensure better credit flow and enable normal functioning of the financial markets.

With the view to conserving cash, he asked banks and co-operative banks not to make any dividends for the financial year ending March.

On March 26, the Indian government announced a relief package of Rs 170,000 crore for those hit the hardest by the coronavirus-induced lockdown, along with insurance cover for frontline medical personnel.

And it is poised to declare a large financial package to the tune of Rs 9-10 trillion for its industrial and service sector within a day or two. But the RBI's has already taken its preparation for this.

In contrast, the Bangladesh Bank just seems leaden-footed, with its work on softening the fallout from the pandemic did not start until the middle of March, after the announcement of the first confirmed cases of COVID-19.

While it has taken on several programmes, its moves seem reactionary rather than anticipatory.

As part of the move, the BB cleaved CRR by 150 basis points to 4 per cent to inject about Tk 19,400 crore into the economy.

To make funds cheaper for banks, it slashed the policy or repurchase agreement rate by 75 basis points to 5.25 per cent.

The BB also announced quantitative easing and increased the ceiling for loan-deposit ratio.

As per the government announcement, the BB asked banks to give out loans amounting Tk 50,000 crore to large, medium and small enterprises and service sector at a lower interest rate.

It also introduced a pre-shipment credit refinance scheme involving Tk 5,000 crore at a low interest rate. A fresh refinance scheme of Tk 5,000 crore for businesses of the farm sector has been introduced, too.

It has widened its export development fund from $3.5 billion to $5 billion and asked banks not to consider borrowers as defaulters for failure to repay instalments until June 30.

Banks will have to disburse the lion's share of the stimulus package from their own sources. But, they are already mired in cash crunch due to the huge cash withdrawal in recent days.

And this is where the BB's role has been found wanting. It has yet to provide any roadmap on how to supply the required money to both the government and the banking sector to implement the rescue packages.

Poor revenue collection has already forced the government to exceed its annual borrowing limit from banking sources seven-and-a-half months into the fiscal year.

Although the central bank has declared to buy back T-bills and bonds, it has yet to finalise any plan on how much securities will be purchased.

The Indian banks will get term loans in the form of LTRO, whose repayment duration is three years. But such a mechanism is absent in Bangladesh.

Bangladeshi banks will have to pay back the BB fund, taken using the repo method, within 28 days.

So, lenders may face a fund mismatch in the days ahead.

There is no denying that the GDP this fiscal year and calendar year will come crashing down by as much as 500 basis points to 2-3 per cent, meaning that the BB will have to inject a large amount of money to keep the demand level up.

If the BB fails to operate the money management properly, inflation may be fuelled once the lockdown is lifted.

The RBI has completed all tasks before the Indian government declared the bailout package, but the BB has issued most of the notices as per the government's instruction.

A good number of BB officials are working round-the-clock, but there has been no coordination among different departments to draw up plans on how to soften the landing.

"The number of monetary experts in the BB is lower than in the RBI. But we should use our limited workforce properly to manage the situation," said a BB official requesting anonymity when informed of the neighbouring country's banking regulator's proactive deportment.

Perhaps, the BB can follow the RBI's lead, he added.