Why the stock market is disconnected with the real economy: RBI Governor

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The COVID-19 have forced the financial committee authorities and other related experts to keep an eye on even the slightest movement of the economy. The RBI is constantly checking the behaviour of the market and its effect on the financial steadiness and is ready to take various measures when it is necessary. He mentioned the strong vigilance of RBI and is prepared with the steps for the corrections to be made in the financial sector. The committee is ready with active plans to deal with the uncertain guest we welcomed.

The RBI Governor Shakthikanta Das recently stated with a tone of concern about the disconnect between the stock market and the real economy and a correction will be soon witnessed even though the time can’t be predicted. The governor told that the additional liquidity in the global system seems to be supporting the stock market liveliness. Since the pandemic is been declared, the stock market rise is abnormal. The statement about the correction in the stock market which cannot be predicted on a time basis is been said by Governor in the CNBC Awaaz news channel.

Mentioning to the winding down of six debt schemes of Franklin Templeton Mutual Fund, Governor told that RBI took a positive and proactive measure by opening a Rs 50,000 crore liquidity window for the mutual fund industry. The loan moratorium period extended can only be a temporary solution from the coronavirus pandemic and related stress. The moratorium period given will come to an end on August 31, 2020. The central bank gave a one-time opportunity to corporates and retailers to restructure their loans. As far as he knows, all banks will get back to place when a board approved restructuring framework is implemented on them by August 31.

He stated that the people who will get the benefit will be determined by banks itself, adding eligibility has already been well-defined by RBI in its notifications on August 6, 2020. The benefit from restructuring can be availed by people whose account was standard on March 1 and the defaults should not be over 30 days as per the notification released.

Governor also spoke about the former declared K V Kamath committee will give recommendations on some financial parameters like debt service coverage ratio, debt-equity ratio post-resolution and interest coverage ratio.

The five-member panel is only observing at the big corporate loans and not the retail advances, he mentioned. Its recommendations will be notified within 30 days of setting up of the panel, which means the notification ought to be out by September 6, he stated.