Biggest toll of COVID-19 second wave is in terms of #39;demand shock#39;: RBI

Economy
Representative image

Representative image

The biggest toll of the second COVID-19 wave is in terms of a “demand shock”, the Reserve Bank of India (RBI) said on May 17.

The resurgence of coronavirus has “dented but not debilitated” economic activity in the first half of first quarter of financial year 2021-22, the central bank said in its monthly bulletin.

The ferocity of the pandemic’s second wave has “overwhelmed India and the world”, the RBI stated, adding that “war efforts” have been mounted to stop the second surge in its tracks.

“Real economy indicators moderated through April-May 2021. The biggest toll of the second wave is in terms of a demand shock – loss of mobility, discretionary spending and employment, besides inventory accumulation, while the aggregate supply is less impacted,” the Reserve Bank said.

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Though the economic activities have been hit, the impact of COVID-19 second wave is not as adverse as it was in the same period last year, the central bank suggested.

“Although extremely tentative at this stage, the central tendency of available diagnosis is that the loss of momentum is not as severe as at this time a year ago,” it said.

As the COVID-19 pandemic disrupted economic activities significantly,

Non-Banking Financial Companies (NBFCs) were hit hard, the bulletin further noted.

“The consolidated balance sheet of NBFCs grew at a slower pace in Q2 and
Q3:2020-21. However, NBFCs were able to continue credit intermediation,

albeit at a lower rate, reflecting the resilience of the sector,” it stated.

The Reserve Bank and the Government undertook various liquidity
augmenting measures to tackle COVID-19 disruptions, which facilitated
favourable market conditions as indicated by the pick-up in debenture

issuances, the RBI claimed.

Among sectors NBFCs lend to, industrial sector, particularly micro and small and large industries, were the hardest hit by the pandemic as they posted decline in credit growth, it added.

The RBI also noted that NBFCs in the retail loan sector “stayed ahead of the curve” aided by their relatively low delinquency.

“Profitability of the sector improved marginally in Q2 and Q3:2020-21 as
NBFCs’ expenditures registered a steeper fall than income. The asset qualityof NBFCs improved in Q2 and Q3:2020-21, vis-à-vis Q4:2019-20, on account of regulatory forbearance to mitigate the impact of COVID-19,” it further said.