The Reserve Bank of India (RBI) is more concerned about the depositors interest and preserving financial stability than giving doles to the industry, governor Shaktikanta Das indicated to industry captains on Wednesday.
“The primary concern in the banking system is the protection of depositors’ money. Ultimately, it is the depositors’ money that is being lent out,” governor Das said in an interaction with the governing council of the industry lobby group Federation of Indian Chambers of Commerce & Industry (FICCI).
“Depositors run into crores in numbers, whereas borrowers could be in lakhs. There are small depositors, middle class depositors, there are retired people who depend on bank deposits. So, the interests of depositors have to be protected. Also, the aspect of financial stability of the banking sector needs to be also kept in mind,” governor Das said responding to various demands by industrialists.
Banks have an important role to spur economic development in an emerging markets economy like India as they are in the forefront of providing credit. And hence, depositors interest, as well as preserving financial stability would be the main considerations for the Reserve Bank.
“We don’t want a repeat of the situation, which India experienced four five years ago where the non-performing assets (NPA) levels of banks had gone up very steeply. On the other hand, we are also mindful of the fact that Covid-19 has adversely affected large number of businesses particularly those that took loans from banks. They also needed some relief,” Das said.
Businesses which are otherwise viable but have genuine cash flow problems because of temporary disruptions in activity have to be looked after too. “So the focus is to assess and enable such businesses that are otherwise viable but their cash flows drying up. Both the sides had to be matched and in fact the revival of such businesses will also ensure NPA levels are kept low and swift economic recovery takes place,” governor Das said in the question answer round of his keynote address. In this context, he praised the Kamath committee to come up with an exhaustive set of recommendations in just 30 days time after interacting intenseively with all players concerned.
Governor Das also said the RBI cannot be giving the same leeways to the non-bank financial sector (NBFC) as it gives to banks, as the NBFCs enjoyed a light-touch regulation until now. The loan-to-value ratio in case of gold loans for NBFCs are 75 per cent, whereas for banks it could go up to 90 per cent. Besides, gold loan companies will have to take permissions for branch opening, whereas banks do not have such restrictions.
This is because gold loan business is just a tiny portion of banks’ business, whereas gold loan companies are wholly dependent on that. If there is a fluctuation in gold prices, the NBFCs can get wiped out, a scenario that the central bank does not want to witness.
“Fragility and vulnerability of the NBFC sector is still a concern. We don’t want repeat of another crisis of a large NBFC. It is our endeavor that no large NBFC should fail. We have been very intensively and rigorously monitoring the top 100 NBFCs because we cannot afford to have another crisis in the NBFC sector,” governor Das said.
The RBI governor again reassured that it will take all necessary measures as required to help push growth.
"As i have said in my earlier engagements also, the RBI stands battle ready, and whatever measures needed, they will be done."
"We are also very carefully monitoring the market, as and when required, further measures will be taken. The immediately policy response is to prioritize policies for durable and sustainable growth."
The government said the government's borrowing programme, despite its humongous size of Rs 12 trillion, is being done at a decade low level of rates. The borrowing is being done at around 6 per cent, thanks to the liquidity measures undertaken by the central bank. Private corporations have also benefited and spreads have narrowed for all firms, the RBI governor pointed out.
In his keynote speech, governor Das touched upon five key areas that need focus of policymakers and the private sector participants.
Human capital, in terms of education and health needs increased focus, the country should focus more on increasing productivity, and try to boost exports in order to get into the global value chain. Tourism and food processing also need special focus, the RBI governor said.
The private sector has a critical role to play in these five areas to actualise the potential of the Indian economy.
While Indian companies are global suppliers of medicines, the companies must try and get into the global supply chain. The private sector can do more on the electronics and telecommunications space.
Domestic policies need to focus on right mix of local and global rules. Global polices should be nurtured that goes beyond traditional market access issues. “Provision related to investment, competition, intellectual property rights protection has larger positive impact on global value chains trades and need to be assiduously cultivated and intergraded in the Indian eco system," the RBI governor said.
While some sectors have started coming out of the slowdown, most are down. Some sectors that had shown promise have given up on their momentum in June and July, the governor said, warning, the recovery from the Covid-19 pandemic could be slow.
“Covid-19 has changed our lives and it is increasingly getting clear that life will never be the same again,” but, “we should look upon these fundamental changes as opportunities rather than threat,” the governor said in his address.
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