 "RBI")
Reserve Bank of India (RBI) Governor Shaktikanta Das and Deputy Governors Michael Debabrata Patra, M Rajeshwar Rao, Swaminathan Janakiraman, and T Rabi Shankar spoke on a range of issues at a post-monetary policy media interaction. Edited excerpts:
For the first time, you have said regulators should also be mindful of over-tightening. Can we, therefore, expect the interbank call rate to come towards the repo rate of 6.5 per cent?
Das: We always take a balanced approach. The mention of being mindful of over-tightening should not be interpreted as an imminent change in our approach. Our decisions are dependent on inflation and growth parameters. Inflation remains a top priority, and a few months of good data should not lead to complacency. We are not considering any loosening at the moment.
In the last policy announcement, there was a warning about the unsecured loan portfolio. Some players have mentioned they are going slow on Rs 50,000 or small-ticket size loans. Have you observed any specific problems in that segment?
Swaminathan J: It was mentioned while making that announcement that it is a pre-emptive measure to bring certain prudence and to bring an end to any sort of exuberance that may be exhibited by certain lenders. An effort was made over the previous three to four months by way of sensitising the players to put adequate internal control measures to ensure that the risk build-up is avoided. As the market was not responding enough to that, there was a necessity for, as we had mentioned earlier, that we watch the data and based on the data we have taken certain measures to strengthen the prudential measures that the regulated entities have to put in place. So, it is too early to see or pass a conclusion as to what sort of effect it is taking. But at least from our interactions with the market participants, the financial system as well as some of the articles are alluding to the fact that there are risk management practices are getting better, underwriting is getting better and any business model that is likely to throw up an enhanced risk is curtailed. So, that is our intention. It is not to curtail the growth. We would expect the lenders to conduct themselves and draw their business models in a manner in which an avoidable risk build-up is mitigated.
Does the recent communication of “no action” and maintaining the withdrawal of accommodation stance indicate a neutral stance to the market?
Das: No, our communication is carefully prepared, and there is no inadvertence. The notion of a move towards a neutral stance would be incorrect. The inflation trajectory is still above the 4 per cent target, and monetary policy remains actively disinflationary. Any interpretation of moving towards a neutral stance would be a mistake.
You didn't mention open market operation (OMO) this time. Does this mean it’s off the table, or is it still an option?
Das: The need to deploy OMO has not arisen due to factors beyond our control, such as the festival season demand for currency and government cash balances. The instrument remains on the table and will be used if required based on evolving liquidity conditions.
There have been a lot of instances of cooperative bank board changes recently. So, as a regulator, how do you tackle the cases of corporate governance issues at the cooperative bank level?
Rao: Now, coming to the governance issues, I think broadly we say that through the supervisory process, we have a close monitoring of the various parameters of the functioning of the regulated entities, which includes governance, business models, risk management, compliance, etc. So, it is a package that monitors the entire functioning of these regulated entities. If there are certain concerns about the regulated entity in so far as governance is concerned, there would be an engagement with the concerned entity to take appropriate action as may be necessary.
The willful default circulars which have asked banks to apply within six months. There is a presentation made by IBA to extend the timeline to one year. What is the update on this?
Rao: The entire draft circular on the Willful default case has been put in public domain for comments. We have received feedback on the circular and we are in the process of analysing them before the final circular comes. So this feedback also will be factored in while taking a final decision on the circular.
