New Delhi: The Reserve Bank of India (RBI) will start providing economic growth estimates once there is clarity on the Covid curve, RBI Governor Shaktikanta Das said Thursday. 

Addressing a virtual banking conclave organised by the newspaper Business Standard, Das said the central bank “does not have the luxury” of predicting a growth number and then changing it often. 

“Times are very uncertain. Situation keeps changing very fast. If you give any number with regard to growth, there is absolutely no certainty that one month down the road, the figures will not change,” Das added.

So far, the central bank has only forecast that the Indian economy will contract in 2020-21 but has refrained from providing any clear estimates. 

Das said that during these uncertain times, the central bank has to give a growth number in a very responsible manner. 

“The central bank does not have the luxury of giving one (growth) number today and then modifying it two months down the road. Once there is some clarity on the Covid curve, RBI will certainly start giving the numbers,” Das said. 

The central bank had, in fact, revised its growth projection for 2019-20 downwards multiple times from its initial projection of 7.4 per cent on account of a sharp slowdown in economic growth. 

The Indian economy eventually grew at 4.2 per cent in the year, according to the National Statistical Office. But, as Das pointed out, this time around, external factors will also weigh in heavily. 

“Growth is not only impacted by domestic factors or the domestic Covid curve, but also by global factors and Covid curves in other parts of the world and other global developments.”

‘Rising bank fraud an area of concern’

Among other things, the governor highlighted rising incidents of bank fraud as an area of concern. 

According to the RBI’s annual data, the total cases of fraud reported by banks in 2019-20 rose 151 per cent in value terms over 2018-19, to Rs 1.85 lakh crore. 

“A visible area of concern is the inability of banks to manage incidents of frauds, both cyber ones and others. The origin of the rising incidents of frauds is the not-so-efficient risk management capacities of banks, both at the time of sanctioning of loans and then in the credit-monitoring framework,” Das said. 

He stressed the need for an effective early warning system and forward-looking stress-testing in the risk-management framework of banks. 

‘Being overly risk averse will be self-defeating for banks’

Das also pointed out that banks are being overly risk-averse as part of their “self-immunisation” strategy, noting that this will be “self-defeating” as it will impact their credit growth and profitability. 

Financial institutions have to walk the tightrope in nurturing growth within the framework of preserving financial stability, Das said, adding that banks need to improve their ability to withstand exogenous shocks. 

“It is time for banks to look deeply within … Core of resilient banks is good governance, effective risk management and robust internal controls,” Das said, listing these factors as three areas where banks need to improve. 

‘Resolution process to bring durable relief’ 

Das said the resolution process announced by the RBI earlier this month will bring “durable relief”, adding that the central bank expects banks to diligently implement it.  

Earlier this month, the RBI had allowed banks to go in for a one-time restructuring of loans to provide relief to both borrowers and the balance sheet of banks. 

The resolution of stressed assets strikes a balance between the interest of depositors and preserving financial stability and in preserving the economic value of businesses, Das said.

After the containment of Covid-19, a very careful trajectory needs to be followed for orderly unwinding of the measures, he added. 

“Financial sector should be able to return to normal functioning without regulatory relief,” Das said, but assured all stakeholders that the unwinding process will be calibrated and non-disruptive, with the RBI taking a long-term view. 

Over the last five months, the RBI has announced a slew of measures aimed at improving liquidity in the markets as well as providing relief to borrowers and financial institutions to minimise the impact of the pandemic on the economy and the financial sector. 

‘Not exhausted policy space’

The governor reiterated that the central bank has not exhausted policy space and remains ready to use all measures at its disposal in its response to the pandemic. 

The RBI has reduced key policy rates by 115 basis points in the last five months but refrained from cutting policy rates in the monetary policy committee meeting earlier this month, constrained by inflation crossing 6 per cent. The monetary policy committee is tasked to target a 4 per cent inflation with a range of +/-2 percentage points. 

“We have not exhausted our ammunition,” Das said.

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