Notwithstanding the rate cuts made since February, the Reserve Bank of India (RBI) still has the headroom to take more policy decisions to deal with the adverse impact of COVID-19, its chief said.
“We have not exhausted our policy options with respect to rates cut or repo rate or any other aspect of the central bank,” RBI Governor Shaktikanta Das said at the Business Standard BFSI online summit on Thursday. “We have not exhausted our instruments or ammunition,” he added.
“It is not correct to say that RBI’s rate cuts have not worked,” Mr. Das asserted.
He said the RBI had been monitoring the situation and was “very, very careful and watchful of the emerging developments in the domestic economy, the global economy and in the financial sector and money market”.
The RBI would take proactive decisions to deal with emerging situations and challenges, he said, adding “so it’s never a dull moment at the central bank and more so in times like this”. Stating that the Indian economy had already been ‘fragile’ before the pandemic, he said certain areas though were far stronger as compared to the situation during the global financial crisis.
The RBI Governor said banks should shed extreme risk aversion and lend by improving their risk assessment and governance. He added that while a certain amount of increase in NPAs was to be expected, overall the Indian banking sector was sound and safe.
‘Hard to measure’
He said as the pandemic ravages on, the economic impact was hard to measure.
Commenting on the RBI’s resolution plan, he said while the moratorium on loans was a temporary solution in the context of the lockdown, the resolution framework was expected to give durable relief to borrowers facing COVID-19-related stress.
Mr. Das added that while recent measures taken by the RBI would not be done away with immediately, post the containment of COVID-19, a very careful trajectory would be followed for orderly unwinding of the various counter-cyclical measures.
“The financial sector should return to normal functioning without relying on the regulatory relaxations and other measures as the new norm,” he cautioned.
Highlighting that there would be newer risks, he said banks remaining overly risk-averse may seem to be a measure of self-immunisation, but would be self-defeating as it would affect the bottom lines adversely.
He also flagged banks’ inability to manage operational risks, particularly controlling the incidence of frauds, both cyber-related and otherwise as an area of concern.