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Dear RBI, fix the risk aversion problem to make banks safe from Covid-19

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India’s weakened financial system is counting its days towards a crisis unless the Reserve Bank of India (RBI) begins to ring-fence it against the Covid-19 impact.

That would mean giving forbearance to banks as argued by this column on Wednesday. But forbearance is just one part of the solution.

D Subbarao, who was at the helm of the central bank during the global financial crisis in 2008 believes that the most important task is to ensure credit to sectors.

He recommends targeted measures using macro-prudential policy. “The RBI’s challenge is not rates or liquidity. It is risk aversion," says Subbarao. “If you believe that some sectors need support badly than others then macro-prudential measures are warranted.

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