RBI governor Shaktikanta Das to meet bank chiefs ahead of monetary policy

Like to discuss issues related to growth, interest rates

The Reserve Bank of India (RBI) will be meeting managing directors and chief executive officers of public and private sector banks on Wednesday (November 16), ahead of the December review of the monetary policy to take stock.

RBI Governor Shaktikanta Das, along with the deputy governors and other senior officials from the RBI, will meet bank chiefs.

According to bankers, issues pertaining to credit growth, asset quality, and the impact of interest rate hikes are likely to be discussed.

Bankers said the central bank calls for such meetings to study the on-ground situation and assess the preparedness of banks for any challenges, if any, that may arise.

“Credit growth, asset quality issues, digital banking units and their progress, the outlook of bankers on interest-rate movements will be discussed,” said a bank chief, who is expected to attend the meeting.

Credit growth in the system has picked up substantially in the past few months, albeit on a low base, touching multi-year highs, mainly driven by the retail and the micro, small and medium enterprise segment. However, deposit growth has been trailing credit growth by a substantial margin, leading to worries that deposit growth may become one of the constraints for future uptick in credit growth.

According to the latest RBI data, bank credit has grown 17.9 per cent year-on-year (YoY) — a 10-year high — for the fortnight ended October 21. During the same period, deposit growth has grown 9.5 YoY, resulting in a credit-deposit growth gap of 840 basis points (bps).

Experts have reckoned that the loan growth is faster than what a sustainable rate is. It is, however, expected to normalise in due course. Typically, when there is an economic slowdown and when there is infusion of liquidity by the central bank, deposit growth will pick up ahead of loan growth and the opposite happens when the economy improves.

As far as asset quality is concerned, banks have seen substantial improvement in their asset quality in the second quarter. On a system level, non-performing assets are at a multi-year low. With inflation remaining at elevated levels and interest rates rising as the central bank treads a monetary tightening path, there could be some stress in the offing. Bankers said the RBI is perhaps looking to examine the impact of inflation and rising interest rates on the broader economy.

The RBI’s six-member monetary policy committee has raised the benchmark interest rate by 190 bps since May to tackle runaway inflation. Banks are likely to give their feedback on the impact of the interest rate hikes on bank balance sheets.