Amid the slowdown in economic activity, Reserve Bank of India Governor Shaktikanta Das urged businesses not to be pessimistic, while acknowledging headwinds, and reiterated that growth was the central bank’s highest priority.
“I would appeal to the leaders of business and financial sector fraternity, it is the sentiment which is important. Please look at the opportunities ahead of us,” Mr. Das said at a seminar organised by industry body FICCI and IBA. “We do realise that there are challenges, there are difficulties coming from external and domestic sources. But I think one has to look at the opportunities, one has to maintain a positive sentiment and capitalise on this opportunities. Because the mood of doom and gloom is not going to help anyone,” he said. The RBI Governor reiterated that growth was the highest priority for the central bank. RBI has reduced the repo rate by 110 bps since February to support growth with inflation staying under control.
“At this particular juncture, growth is a matter of highest priority,” he said, adding that the issues of financial stability also assumed importance.
He said the headwinds to financial stability could emanate from various sectors of the economy — the credit market, financial markets, external sector and payment system. On the issue of headwinds from the credit market, particularly from non-banking finance companies, Mr. Das said it would be the RBI’s endeavour not to allow any large, systemically important NBFCs to fail. “We are monitoring the various developments that are happening. We have a system of monitoring top NBFCs, about 50-odd, including housing finance companies…they are constantly being monitored,” he said. “It is our endeavour to ensure that there is no collapse of a large or systemically important NBFC.” In October last year, infrastructure conglomerate IL&FS defaulted on a series of payments which led the government to replace the existing board with a new one and started a resolution process through asset monetisation.
The RBI Governor welcomed the latest move by banks to link fresh loans to repo rate which would enable faster transmission of interest rates. While a few banks have already linked retail loans like home loans to the repo rate, some others are in the process of rolling out the scheme. “Our expectation is that they should move faster…It is a positive trend. But this process needs to be faster. The economy needs a certain kind of push not only from monetary policy but also from its transmission,” Mr. Das said.
The RBI Governor said that he expected the government to infuse capital in the public sector banks at the earliest for not only meeting regulatory requirement but also to fund growth.
“Our expectation is that the ₹70,000 crore capital that has been provided by the government for public sector banks will be released at an early date, will be released upfront. This will not only be a requirement for regulatory compliance but also meet growth capital needs.”