In his swansong monetary policy, RBI Governor Raghuram Rajan today lambasted banks for passing on rate-cut benefits "only modestly" to borrowers on one pretext or other - the latest being dollar deposit outflows - even as he decided to stay put on inflation-control as priority.
The outgoing Governor also sought to make light of his critics, saying he also gets 'anonymous thank you notes' even while on plane and described his tenure at RBI as "fantastic".
Rajan, who has decided to return to academia after his three-year tenure ends on September 4, said today's policy review was likely to be the last one to be Governor-led, as a the exercise would be conducted by new six-member panel going forward.
Complaining that banks have passed benefits only in a "modest" measure to borrowers, Rajan said a pick-up in credit demand, which would follow the economic recovery and competition for corporate loans after the ongoing balance sheet clean-up by the state-run lenders, will ensure softer lending rates.
Rajan charged bankers with inventing newer excuse for delaying the rate cuts and pointed out that concerns over the FCNR(B) redemptions, despite RBI's public assurance of making it non-disruptive, are the latest one in a series.
"Earlier, some bankers said it was lack of liquidity that was holding the rates high. Now, I hear from some that it is the fear of FCNR redemptions that is making them reluctant to cut rates. I have a suspicion that some new concern will crop up once FCNR redemptions are behind us," Rajan said.
"We would be happier if there was more transmission," he said, adding that the RBI is sensitive to "some of the difficulties" which banks have to face following the balance sheet clean-up.
With the system staring at an outflow of USD 26 billion in foreign currency deposits (FCNR-B), raised when the rupee was bleeding in September-November period of 2013 following the 'taper tantrums' in the summer of that year, Rajan sought to assuage concerns of the banking system saying RBI will ensure there is no market disruption because of it.
Rajan also exuded confidence that inflation target of 5 per cent for March 2017 will be met.
"We are within the inflation band given to us by the government and expect to be around 5 per cent CPI inflation target by March 2017, absent unforseen eventualities... Broadly, we are comfortable that we should be reaching the 5 per cent target," Rajan told reporters after announcing the third bi-monthly review of the monetary policy, 2016-17.
Terming his tenure as "fantastic", Rajan said snap
judgements by critics do not matter as he has made useful contributions and the results will be visible in 5-6 years.
When asked about his response to the critics, he said: "I have nothing to say critics are there all the time. There are also people who send me message in the plane...Anonymous notes saying, 'thank you for what you are doing'. That's part of the job... I think, from that perspective, this has been a fantastic job."
BJP MP Subramanian Swamy has been criticising Rajan for keeping interest rate high initially to the detriment of the Indian economy, especially the MSME sector.
"People can have different judgements but we have to see ...Proof of the pudding is in the eating. Lets see how it plays out over 5-6 years, then we will reach a judgement whether this is good or bad," Rajan said.
On non-performing assets (NPAs) or bad loans impacting the banking sector, especially state-owned banks, Rajan said he is comfortable with the stressed assets recognition process undertaken by the lenders in the process of cleaning up their balance sheets.
"Some banks have taken more steps than we required them to take. So, the culture of cleaning up (of balance sheet) seems to be well embedded as well as a culture of recovery on some of the loans," he said.
In order to make transmission swifter, RBI had introduced MCLR from April 1 this fiscal which has lowered the minimum cost of bank funding by up to 0.30 per cent.
"Having examined our experience with the MCLR framework, we will shortly be suggesting some revisions," Rajan said.
He noted however that a "substantial pass through" of the rate cuts is possible only when the sagging corporate credit demand picks up on economic recovery.
Rajan said today's policy review, his last as the head of RBI, will most likely be the final one done by the Governor as the Monetary Policy Committee (MPC) will take over from the next policy announcement scheduled for October 4.
The government has already started the process of identifying its three members for the panel, while RBI has nominated executive director Michael Patra to be its nominee on it, in addition to the Governor and the Deputy Governor in-charge of the monetary policy department Urjit Patel.
The Governor will have a casting vote once the country shifts to the panel system.
"The MPC is a fundamental institutional reform which modernises our monetary policy framework and builds a strong platform for a strong and sustainable growth," Rajan said, adding its collateral benefits besides lower inflation will include stable currency and higher real interest rates.
