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04

Monetary Management and

Financial Intermediation CHAPTER

Monetary policy and liquidity operations since the beginning of the COVID-19 pandemic
have geared towards mitigating its adverse impact on economy. Accommodative monetary
policy along with other regulatory dispensations, asset classification standstill, temporary
moratorium and provision of adequate liquidity were put in place in order to provide a
safety net to the system. In 2021-22, some of the measures undertaken by RBI like CRR
reduction reached pre-set sunset dates, liquidity has been wound down partly but remains
in surplus mode and regulatory measures have been realigned.

After several rate cuts in 2019-20 and 2020-21, the repo rate was maintained at 4 per cent
in 2021-22. The liquidity in the system remained in surplus throughout. RBI undertook
various measures, including secondary market G-sec acquisition programme, special
Long-Term Repo operations, on tap targeted Long-Term Repo Operations, etc. to provide
further liquidity in the system. Thereafter, RBI used Variable Rate Reverse Repo, reverse
repo auctions to rebalance liquidity conditions.

Reserve money and broad money supply growth in 2021-22 so far was lower than in the
previous year. The reserve money growth did not fully translate into commensurate broad
money supply growth due to the smaller (adjusted) money multiplier reflecting large deposits
by banks with RBI under reverse repo window. Bank credit growth accelerated gradually
in 2021-22 up from 5.3 per cent in the beginning of April 2021. The very latest data shows
that the bank credit growth stands at 9.2 per cent as on 31 December 2021. At the sectoral
st
level, credit to agriculture sector continued to register robust growth and showed signs of
improvement in the industry sector. Services sector credit growth, however, is yet to recover.

Gross Non-Performing advances ratio of Scheduled Commercial Banks (SCBs) continued
to decline from 11.2 per cent at end of 2017-18 to 6.9 per cent at end-September 2021.
Similarly, Net Non-Performing advances ratio declined from 6 per cent to 2.2 per cent
during the same period. Capital to risk-weighted asset ratio of SCBs continued to increase
from 13 per cent in 2013-14 to 16.54 per cent at end-September 2021. The Return on
Assets and Return on Equity for Public Sector Banks became positive in June 2020 and
continued to be positive for the period ending September 2021, after recording negative
profitability ratios from March 2016 to March 2020. The economic shock of the pandemic
has been weathered well by the commercial banking system so far, even if some lagged
impact is still in pipeline.