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RBI in sync with government efforts to accelerate growth: Shaktikanta Das.

Date: 22-07-2019
Subject: RBI in sync with government efforts to accelerate growth: Shaktikanta Das
The Reserve Bank of India (RBI) is doing everything at its disposal to be in sync with the government’s efforts to accelerate economic expansion, be it interest rate cuts, ensuring sufficient liquidity or enabling more bank lending, governor Shaktikanta Das said in an interview. But global economic uncertainty due to trade tensions, corporate leverage and sector-specific issues have been a drag on growth, he said. 

Financial sector stability is at the core of the regulator’s efforts and it doesn’t want to see any systemically important institution get into trouble, Das said. At the same time, there won’t be any special favours to nonbanking finance companies (NBFCs) and firms that have engaged in dubious business practices have to face the consequences. 

Whatever is possible within the role that has been assigned to RBI, we have taken all the possible measures,” Das said. “At the same time, we are also focussing on the aspect of financial sector stability… in terms of strengthening supervision and regulation of banks and NBFCs. Whatever is necessary to be undertaken in the future, the RBI will definitely respond.” 

Das dampened expectations that regulatory dispensation may be made available to the struggling NBFC sector, including easy availability of funds. 

“The liquidity window is a misnomer — the RBI cannot be giving clean money, unsecured money to NBFCs,” said Das, referring to the industry demand for funding directly from the RBI. “RBI can provide money through the banks. They can do the due diligence and lend money to NBFCs. We have ensured there is adequate liquidity with the banks. We are monitoring the top 50 NBFCs very closely which we have identified on the basis of their past credit behaviour, size and business volume.” 

He said the central bank had discussed the matter with banks. “We have also interacted with the banks and they are trying to find market-based solutions to the problems like bringing in additional promoter equity, initiating stake sale, securitisation of assets,” Das said. 

“In large cases like IL&FS, banks are expected to go in for faster resolution wherein the promoters have to make sacrifices and banks as well will deal with it appropriately to ensure that a systemically important NBFC does not collapse. I am not referring to any particular NBFC, but if there are governance deficits noticed, certain faulty business practices are noticed, these NBFCs will have to take a larger cut themselves.” 

Demands for a special liquidity window arose after a credit squeeze sparked by the Infrastructure Leasing & Financial Services (IL&FS) default in September last year. With growth hitting a five-year low last year, the clamour for easy money has grown louder. 

The central bank has reduced the key interest rate by 75 basis points in this rate cycle and shifted its stance to accommodative from neutral. It has lowered the inflation forecast for the fiscal year which opens up more room for interest rate cuts. It has ensured that liquidity is sufficient with banks parking excess funds with the RBI rather than borrowing from it. Das also said that the shift in stance was equivalent to a 25 bps reduction. One basis point is 0.01 percentage point. 

Das pushed back against speculation that the RBI would easily allow NBFCs that face an asset-liability mismatch to convert themselves into banks. 

“There cannot be an automatic transition of NBFC into banks,” he said. “Banking licence is on an on-tap mode and anybody can apply—RBI will examine these requests keeping in mind all regulatory parameters.” 

Investors betting on cryptocurrencies also had their hopes dashed with the governor asserting that issuing currency was a sovereign right and warning that these may end up being pyramid schemes. 

“Issuance of currency is a sovereign function world over,’’ said Das. “World over that function has been delegated by the sovereign to the central bank. You cannot have private entities issuing currency instruments because that will completely undermine and destroy macroeconomic and financial stability.’’ Ties between the government and the central bank have been warming since Das took over last December. 

“I believe in having consultations with all stakeholders and the government is much more than a stakeholder. Therefore, internal consultations and discussions should resolve all issues,” the governor said. 

Source: economictimes.indiatimes.com

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