We have enough buffers to absorb Greek shock: Rajan

The Reserve Bank will continue to do spade work for sustainable growth in the coming year.

July 02, 2015 11:31 pm | Updated April 01, 2016 11:46 am IST

RBI Governor Raghuram Rajan addressing a press conference in Chennai on Thursday H.R. Khan, Deputy Governor, is at right. Photo: Bijoy Ghosh

RBI Governor Raghuram Rajan addressing a press conference in Chennai on Thursday H.R. Khan, Deputy Governor, is at right. Photo: Bijoy Ghosh

Governor of Reserve Bank of India (RBI) Raghuram Rajan, on Thursday, indicated that India’s growth story would be better than other economies as he sought to allay concerns over fall-out of Greek crisis on India.

“Greece is an evolving situation. Direct exposure to Greece for India is very, very limited as indicated by a few studies done by RBI to evaluate the impact on finance and trade,” he said after RBI’s board meeting in Chennai.

He said the country had enough buffers, including foreign exchange reserves, to protect against any possible adverse impact due to the Greek crisis. Nevertheless, Dr.Rajan admitted that there could be an indirect exposure. What the Greece crisis would do to the exchange rate, how the Euro would react to any Greece issue, and how any untoward developments in Greece could lead to a risk of sentiments among the global investors – all these could have indirect impact, he felt.

Since the direct impact was limited, there might be initial burst of volatility in financial markets if there were untoward developments in Greece, he said. Discerning investors, however, would be able to distinguish the India’s story which would continue to be robust, he asserted. “We not only have good macro policies in place, but growth prospects are quite healthy relative to the rest of the world,” he added.

In his opening remark, Dr. Rajan said that the RBI board reviewed the state of the economy. The economy was recovering and there were signs of capital investments picking up, he added. The Government was trying to put stalled projects back on track, he said. The monsoon thus far was above normal, he added. Though exports were relatively weak, the weakness was seen across many countries and was more due to global factors, he pointed out. The RBI would continue to do spade work for sustainable growth in the coming year, he asserted.

Quizzed on the asset quality of banks, the Governor said RBI was working with the banks to ensure that they recognised the problems early through their database as also took remedial action after identifying the problems. He felt that the government should also play a role. In this context, he pointed to efforts made by the government in putting large projects back on track.

"But from the financial side, we have to make sure that if a project is put on track, it has a healthy capital structure. If the capital structure for long-dated projects is not appropriate in the past, they could be restructured to put them back on track. The process doesn’t become the backdoor way of ever-greening, but a front-door way of giving projects time to repay,’’ he said.

He said that the government was in discussion with the RBI and thinking of infusing more capital to the banks and also allowing them to take decisions on the use of the capital they had. This move and the new strategic debt restructuring initiative would give banks some ability to gain confidence, he felt.

On inflation, Dr. Rajan said the RBI is watching the situation. The news on the monsoon front has been good. “It has so far been significantly above normal. There are varying predictions and we are watching its progression,” he added.

Plans for aggregator NBFCs in the offing

The Governor also announced that the RBI would put in place a regulatory framework to allow a new kind of non-banking finance company (NBFC), which could act as an account aggregator to enable the common man to see all his accounts across financial institutions in a common format. The idea of such an NBFC had emanated from the Financial Stability and Development Council.

“Today if a customer wants to know complete view, he has to access each individual’s website of each individual bank, mutual fund and insurance firm. Here at one go, he can get. It is facilitating the customer to have an immediate view,” he added.

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