No reason to doubt government’s commitment to fiscal deficit: Shaktikanta Das

Reserve Bank of India (RBI) Governor Shaktikanta Das discussed a wide range issues during the post-policy interaction with the media. Edited excerpts:

Did the MPC deliberate on the impact of corporate tax rate cut on fiscal deficit and if yes, what was the outcome?

The government has made a statement that they will adhere to the fiscal deficit target of the current year. So, we have no reason to doubt the commitment of the government to maintain fiscal deficit number as given in the Budget. [The] government has several sources of revenue. So, whatever shortfall is expected because of the announcement of the corporate tax rate cut, the government has the option of making it up through other sources.

Are the open market operations of the RBI only to ensure adequate liquidity or are they used to enable further transmission ?

OMO [open market operations] is basically a liquidity instrument. In our internal working group report, it has been stated that the RBI has several instruments to infuse liquidity. OMO remains in our toolkit. Then, we have forex swaps which we had introduced last year. Term repo is also something which has been added. So far as the RBI is concerned, OMO will be done to deal with the liquidity situation, either to infuse or suck out liquidity. [The] RBI does not manage yields. Yields are market driven.

Is there a lower bound for policy rates?

We have not said anything on the lower bound of policy rates. What we have said is that as long as the growth momentum remains as it is, and till the growth is revived, the RBI will continue to remain in an accommodative mode. At this point, it is not possible to comment where the RBI will take a pause.

There are reports that the government is asking for ₹30,000 crore in interim dividend. But the Bimal Jalan Committee report suggested that there will be no interim dividend. Can you please clarify?

I also saw it in the media. I am not aware of any such demand from the government for payment of interim dividend.

Was there a discussion in the MPC about the ongoing crisis in the PMC Bank?

This is not within the purview of the MPC. But I would like to say that so far as the RBI is concerned, we would like to make it very clear that the Indian banking sector remains sound and stable. And there is no reason for any unnecessary panic. As soon as this issue came to our notice, the RBI acted very swiftly and promptly. One incident should not be used as generalised health of the cooperative banking sector.

Do you think imposing prompt corrective action (PCA) would have been a better option?

Where PCA is appropriate, the RBI will use that framework. We have placed a private sector bank under PCA recently.

Imposing PCA is nothing new. In the past also, the RBI has put banks under PCA. This is to ensure timely steps are taken to bring the bank [back on track].

The RBI has reduced GDP forecast for FY20 sharply, by 80 bps. But why did you cut the rate only by 25 bps?

You have to see it at the back of 110 bps rate [cut] which has been done. It is 135 bps rate cut now between February to October.

PMC Bank was hiding NPAs for the last eight years. Why was the RBI unable to spot that?

The RBI is looking into all aspects of this particular bank. The matter is under investigation by the Economic Offences Wing.

So, at this point in time, I would not like to go into further details.

Will the RBI prefer cooperative banks to be completely regulated by it?

Every such incident is an experience. Based on that experience, we will obviously give a fresh look at the regulatory framework that is in existence. And, if any changes are required, we will take it up with the government.