RBI's tasks to rise manifold with growing NBFCs, digi-platforms: Rangarajan

He also said note ban controversy could have been avoided, had officials been better prepared

Former Reserve Bank of India (RBI) Governor C Rangarajan on Friday called for an eternal vigilance in seeking to preserve the Central Bank's autonomy and said its ability to perform its functions must not be compromised.

"Autonomous institutions with specific mandates are an integral part of democracy. The RBI is one such institution in India.Its ability to perform its functions must not be compromised," Rangarajan said while delivering the inaugural address at the All India Reserve Bank Employees Association's (AIRBOA) 32 national conference in Hyderabad.

Accountability goes with autonomy and accountability requires clear enunciation of objectives of the mandate. Institutional arrangements must be such as to enable the autonomous institutions to function independently, according to him.

Rangarajan, who was the RBI Governor between 1992-97, however, stated that among its multiple functions the Central Bank will have to shed some while assume some new functions like the Payments Regulation Board in future.

Citing some of the new trends in the country's financial system such as growing number of non-banking financial companies (NBFC), the launch of various digital payments and transfer systems, he said the tasks of RBI will also raise manifold. He advised the employees to recognise the changing nature of the financial landscape and be in tune with them. He said the employees had misread the computerisation in the late 1980s.

Much of controversy on demonetisation was avoidable

Speaking elaborately on the demonetisation of high-value currency, which was enforced in November 2016, Rangarajan opined that much of the controversy over demonetisation could have been avoided, had the authorities been better prepared. It was the inadequate supply of new currency to replace the old that has caused much of the storm, according to him.

"The demonetisation measure this time is far deeper than what was done on two earlier occasions. The measure has no doubt sent shivers down the spine of some. However because of the shortage of new currency to replace the old, many have suffered...The immediate pain is real and tangible and the sooner the phase comes to an end, the better for the economy," he said while calling for further action to ensure the long-term gains including the reduction in pure cash transactions and the widening of the tax net.

Credit growth a must

Rangarajan, who was also the former Chairman of the Economic Advisory Council to the Prime Minister, said the problem of bad loans should not be a reason to give less focus on the basic functions of the banking system.

While suggesting a new classification of the bad loans, he stated that even while actions were taken to curb the emergence of non-performing loans, there was a need to get the banking system moving in terms of credit growth. According to him, a hard look at the nature and cause of non-performing loans was required to draw appropriate lessons for the banking system and the Reserve Bank Non-performing loans need to be classified into those affected by external factors and those by other factors.

India should return to high growth path quickly

Rangarajan told the government to firmly focus on the economic growth and avoid any detracting issues. The country needs to overcome the low growth phase as quickly as possible, as growth is the answer to many of its socio-economic problems, he said.

According to him, the country will transit from being a low income to a truly middle-income country only if it grows at 8-9 percent per annum in the coming decade.

"The economy has slowed down. It is imperative to get the economy moving on a fast lane. The investment rate has shown a sharp decline. Jobs will come only out of growth spurred by new investment. There is need to work assiduously towards creating a favourable investment climate. More than ever, non-economic factors will play a key role here. Policy makers need to be conscious of this and keep the focus on growth and away from divisive and detracting issues," he said.