 "Arun Jaitley and Raghuram Rajan")
Reserve Bank of India Governor Raghuram Rajan today said he is "very happy" with the composition of the proposed six-member monetary policy committee that will set benchmark interest rates.
In his Budget speech, Finance Minister Arun Jaitley had said the RBI Act will be amended to set up the committee consisting of six members and headed by RBI governor.
Out of the six members, three will be nominated by the government while three others will be from the Reserve Bank, including the governor.
"We are very happy with the monetary policy committee composition. It was discussed at length with the government. And it has been settled for some time. It's for the government to reveal the composition and it has done so in the Budget," Rajan said.
"I think it's a very reasonable step forward. The monetary process will benefit from this structure. So, I am absolutely on board and happy with it."
He was speaking to reporters after Finance Minister Arun Jaitley addressed the RBI board meeting.
The committee will take decision based on the majority vote. Each member will have one vote, but RBI governor will get a casting vote in case of equality of votes. Currently, the RBI governor decides key interest rates.
To a question on recapitalisation of state-owned banks, Rajan said the amount provided in the Budget is a reasonable sum.
"Of course, the finance minister has added that what was needed was provided. Of course, in this process, we have to be careful that the capital is used properly going forward," he said.
"You take the combination of capital that the government has made available and what RBI has made available. This will be adequate for the actions that we want to take. But of course, it's difficult to take everything into account."
In the Budget speech, Jaitley had said the government was open to providing more capital than what was announced. The government plans to provide Rs 25,000 crore next fiscal and Rs 10,000 crore each in 2017-18 and 2018-19.
Jaitley had also proposed consolidation of public sectors banks in the Budget speech.
On mergers of banks, Rajan said certainly there is a rationale for consolidation of some of the banks, but it is a process which is being discussed as it does not "happen overnight".
He is hopeful of finding good candidates for the merger. "Certainly, there is rationale for merging some of the banks. We need as many banks for following a similar strategy as we have," the governor added.
"The whole sorts of partners are going to be involved, the Bank Board Bureau or maybe, a committee. We are taking into account all these things.
On setting up the Public Debt Management Agency (PDMA), Governor Rajan said "we are still working out the composition".
The government proposes to set up PDMA, an independent office, to manage the Centre's debt. Modelled on independent public debt offices in developed economies like the US and the UK, the separate debt management office will be tasked with selling debt on behalf of the government after taking away such powers from RBI.
Rajan also said linking of small savings rates with market rates is an important factor for transmission of monetary policy action.
Seeking to align interest on small savings with market rates, the government last month announced reduction in interest rate on post office savings of 1, 2 and 3-year terms, Kisan Vikas Patra (KVP) as well as 5-year recurring deposits effective April 1, 2016.
