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Not apprehensive of CAD, says RBI Governor Raghuram Rajan

December 11, 2014 07:39 pm | Updated November 16, 2021 04:52 pm IST - Kolkata

The RBI Governor on Thursday said though the current account deficit has widened to $ 10.1 billion or 2.1 per cent of GDP in July-September period, it is still at comfortable levels.

RBI Governor Raghuram Rajan flanked by Deputy Governor Harun R. Khan (right) and Rajiv Mehrishi secretary (Economic Affairs) during the Central Board meeting of the bank in Kolkata on Thursday. Photo: Sushanta Patranabish

While there are risks to the current account deficit (CAD) on account of gold imports, there is no need for apprehension as the falling oil price provides a cushion, Reserve Bank of India Governor Raghuram Rajan said here on Thursday.

To review priority sector lending norms

He also said the central bank was in the process of reviewing the priority sector lending norms to nudge foreign banks to set up wholly-owned subsidiaries.

After chairing the central board meeting here, Dr. Rajan, at a press meet, said a growth rate of mid-6s was possible next fiscal if certain actions were taken on everybody’s part to get the core sector investments going. “We do expect the growth rate to be above six per cent,” he said.

To a question on the issue of opening of wholly-owned subsidiaries by foreign banks, he said the RBI was in the process of reviewing, at the request of the Finance Ministry, the norms on priority sector lending as that was their primary concern. “When that process is completed in consultation with the government, we communicate the norms widely and then we will nudge them,” he said.

While the RBI was keen to try to encourage them to open subsidiaries here, there were also worries about systemic risks in large foreign banks which had been in India for long. “We are trying to create an incentive structure for them without forcing them. We have to be explicit about the costs and benefits,” Dr. Rajan said.

To a question on gold imports, he said that it had widened. “We are watching its direction... we are vigilant,” he added. “While it is difficult to maintain restrictions for too long, the falling oil prices is a good time to see what happens. Although uncertainties remain but with easing inflation, people will now invest more in bonds, stocks and fixed income securities rather than gold,” he said.

The Governor said the RBI was now gearing up to do payments banks and small finance banks. After that the criteria for universal bank licences were set to be re-examined and reframed, if necessary. Dr. Rajan also chaired the 14th meeting of the sub-committee of the Financial Stability and Development Council on Thursday.

The council reviewed the potential risks facing the financial system and a draft of the December 2014 issue of the Financial Stability Report (including Trend and Progress of Banking in India) was presented at the meeting. The sub-committee deliberated on issues such as deepening of currency derivatives market and uniform KYC across institutions.

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