After this fiscal year’s second bi-monthly monetary policy committee (MPC) meeting, Reserve Bank of India Governor Shaktikanta Das spoke to the media on its change of stance, non-banking finance companies (NBFCs), liquidity and the transmission of interest rates. Edited excerpts:
Is the RBI considering any special measures, given that a housing finance company has defaulted?
We are monitoring major NBFCs and HFCs and the sector. So far as the RBI is concerned, we remain committed to ensure that we have a robust, well-functioning NBFC sector. The RBI will not hesitate to take steps required to ensure that financial stability is not adversely impacted in any manner by any development. I would not like to spell out the specific steps that the RBI will take because it will lead to unnecessary speculation.
Do you acknowledge that there were lapses at the RBI’s end that led to the NBFC crisis?
Our supervision mechanism is robust and from time to time many aspects of the supervision report, available to us, are shared with individual entities. It’s not put out in public domain because it is between the regulator and the regulated entity. So, the RBI expects the board of directors of the companies to take necessary action based on its supervision report and its compliance is also monitored.
Is there a case for a separate supervisory board?
About a fortnight ago, we have already announced the formation of a separate cadre for regulation and supervision of banks, NBFCs and other financial institutions, and this is a major decision that has been taken to strengthen our regulation.
What does accommodative stance mean? If the monsoon is below normal, would you be more concerned about food prices, or rural growth?
Accommodative stance means that a rate increase is off the table. So far as the failure of the monsoon is concerned, the MPC has mentioned it in our resolution, but at this point of time, the IMD forecast is positive that it would be a normal monsoon. And the existing food stock is also 3.4 times the buffer requirement. Going forward, it will depend on how the situation plays out.
Corporate earnings are subdued and demand is a huge problem. Is liquidity adequate in the system, or are more measures needed?
The system-level liquidity is in the surplus mode and we have already announced open market operations of Rs 15,000 crore. As and when required, we will keep infusing liquidity. But based on the requirement, the 75 basis point (bps) rate cut, which has happened during this calendar year, will get transmitted. So far, there has been transmission of 21 bps on fresh rupee loans and we expect higher and faster transmission as we go forward.
Are you okay with weaker NBFCs getting pushed out of the market?
The periodicity of the NBFC supervision has been reduced to 12 months from 18. When we are monitoring individual entities, we have all the data and we know what exactly the position is.
Are you concerned that higher government borrowings will crowd out private demand?
The government has broadly followed the fiscal glide path over the past five years. The total borrowing requirement of public sector firms will have to be seen from the perspective of two points. There are certain public sector entities that undertake a lot of capital expenditure and have their own revenue streams to repay their loans. Hence, it is better to look at that borrowing as a part of the capital investment requirements of the economy, rather than seeing them as a borrowing of the government. In the future, we do expect the government to be fiscally prudent.
Since there is so much government borrowing from the National Small Savings Fund, isn’t there an adverse incentive to keep small saving rates high, which will impede transmission?
With regard to the National Small Savings Fund, I am sure that the government will take note of the overall economic developments and take whatever decision is considered necessary.
Is the RBI and the finance ministry on the same page so far as the Jalan committee report is concerned?
Jalan committee is working independently. I do not interfere or involve myself in any manner in the working of that committee. The committee is working on its own objectively.
Isn’t the government not spending, when its coffers have money, a problem in managing liquidity?
When you have a general election, government expenditures tend to slow down. But now that the elections are behind us, it is picking up. While monitoring the liquidity situation, we do analyse the currency in circulation, look at government expenditures and all the aspects are taken into account.