Growth rate of the economy
The quarantine imposed worldwide is done to stop the growth of Coronavirus, but it has also lessened the growth rate of the economy as a whole. However, several supporting programs are launched by the central as well state government to make the situation under control. The government is facing huge problems to provide cash to companies. However, to overcome the problem, banks are the ultimate sources.
Let us discuss some of the practical ways to do so:
Money availability
Money should be made available to the people owing to medium and small- scale businesses. It will help them to pay the suppliers. To make it practical, the government should guarantee 100% of credit supplies to micro and smaller enterprises. The US government has to simplify the application process as done by Germany and the UK. After the government order, banks can issue such types of loans. Combining these steps will provide velocity to disbursement so that amount can reach companies.
Maturity of loans
Currently, while quarantine SMEs should get an option for the extension on the maturity of loans. Previously, they would have to pay a premium to do so and post additional collateral on terms negotiated with the banks. However, there is no specific time to conduct such individual negotiation.
It can be done if the central bank increases the interest, which it pays to reserves of banks. Doing so will encourage the banks to extend the maturity of any obligations due before the end of the year. The banking supervisor should instruct each bank to follow this option. Supervisors must also assure that the extension does not put these loans under the non-performing category.
The collateral posted by the borrower should continue to provide support to the existing credit. They should not target the new age of borrowing. It will lay a positive impact on the working of ‘good’ borrowers even during the period of quarantine.
The government’s support for the growth rate of the economy
Moving ahead to the next year, the restrictions may be eased. The government’s support for the growth rate of the economy. It will help the banks to collect the money back from the businessman.
However, this process could help both the parties, i.e., the bank and the businessman in need. Beyond the short term measures, at some point, authorities will need to draw a line under the coronavirus crises.
To do so, the government must create asset protection schemes. These schemes will be in exchange for the premiums paid by the banks. It will help to cap up the losses that could help the banks to incur on non-performing loans. Additionally, the government should conduct a workout for asset management companies. It could help to maximize profits on a collective basis. Collectively, this would help the borrowers to increase their profits and will speed up the step that is already announced by the government.
