The Reserve Bank of India Governor Shakthikanta Das had his first interaction with the media and shared his thoughts on a wide range of topics currently concerning the economy at large and the regulator in particular.
One of the key issues on which questions were posed to the RBI Governor related to the crisis engulfing the NBFCs and therefore the banks. The Governor explained that the circular issued by the regulator on June 7 has set the ball rolling and there is a 7-month window, one month to review the situation and another six to complete the restructuring. But the IL&FS case is still rankling the authorities since the Governor stated that “It is our endeavor to ensure there is no collapse of another systematically important NBFC". This is the critical point in the way the government, the banks and the RBI are approaching the crisis.
Staying with the NBFC issue, Shakthikanta Das confirmed that there was no way the RBI can directly lend to NBFCs and it will have to be done by the banks only.
Lastly, on this issue, he could not commit any firm timeframe for the crisis to be overcome completely.
Speaking on other key issues, the RBI Governor stoutly defended the way the regulator had approached the interest rate regime vis-à-vis inflation and the growth of the economy. He claimed that taken with the change in the stance of the regulator to being accommodative, the effective rate reduction should be construed as 100 basis points and not just 75. He also mentioned it’s a dynamic situation and the central bank is keeping a close watch which was its mandate anyway.
The RBI Governor claimed the liquidity situation has improved dramatically and in the past 1½ months, the liquidity surplus in the system has been more than 1 trillion rupees.
On the dollar-rupee exchange rate fluctuation and inflation, Shakthikanta Das was quite upbeat about India’s position. He says he has had talks with his counterparts in other countries, where there is practically zero inflation and zero interest rate. He says those countries are worried too and would want at least some marginal inflation in the long-term interests of their economies.
The RBI Governor then delved into most other issues on top of the agenda within the economy. The crux of his comments is that those NBFCs that had strayed from the path have to pay the price for it. The overall responsibility to restore order in the system will lie with the banks, the government and the RBI.
The central bank is comfortable with a 7% GDP growth projection with no new shocks to the inflation management efforts. The Governor felt the monsoon was behaving better now and the crude price might continue to hover around $65 a barrel. He also stressed the point that some of the initiatives being taken by the Niti Aayog for the agricultural sector have to be taken to their logical conclusion to have a better picture all around.