RBI Governor Urjit Patel had his first interaction with the media since his elevation at the post-policy briefing on Tuesday. Edited excepts:
International backdropFor the first time in a long time, weak global demand is actually going to drag down trade volumes to decline. It is possible that this week the IMF in its meetings, there will be a further possible downgrading of global growth. I would be surprised if there isn’t.
The systemic central banks of the world continue to pose uncertainties for emerging markets causing volatility in EMs due to mixed U.S. macro data as also in the European Union. There is also the issue of the outcome of the U.S. Presidential elections.
Asset qualityThe NPA situation is an important issue for the RBI and India. We will deal with the situation with firmness but also with pragmatism so the economy does not feel any lack of credit to support the growth in the economy. But we must remember that the situation has not occurred overnight and therefore will require skill and thoughtful endeavour to resolve.
Just five sectors contribute 61 per cent of the stressed assets of the banking sector – infra, steel, textiles, power and telecom. The sectors are each individually important and dealing with stressed assets will require skill and creativity. There are many reasons that led to this situation, but now helping banks to deal with this situation is of the utmost importance for the country. We will move at various levels to address the situation and we have indeed done so. We are working with the banks and the government on the subject.
Monetary transmissionThe transmission through the money markets has been swift and decisive. And corporates are using those parts of the financial system more compared to vanilla bank credit. I agree that the transmission to bank lending and to bank borrowers has been less than any of us would have liked. We are hoping that over the next quarter or two, keeping in mind that the government has also reduced the small savings rate, that the MCLR calculation will now throw up more transmission. One thing to distinguish is that for new lending the transmission has been much more.
MPC’s functioningWe have been meeting over the last day-and-a-half going through presentations, discussions, drafting and coming to a conclusion on the policy repo rate. We have a great Monetary Policy Committee. The three external members are of outstanding pedigree. They are very well known academics. They have been involved in policy making of one sort or another for a long time. They bring value and dispersion of opinion which is what the MPC is about. Our discussions were frank, often intense, but always friendly. We allowed each other to speak, and we ensured that there is no rancour and at the end of the day we agreed on a MPC resolution.
