Reserve Bank of India (RBI) Governor Raghuram Rajan believes that the sentiment has changed a lot after the new govt has taken over and stability is key to this sentimental improvement.
He also feels that India is well positioned to take advantage of the global scenario and rate cycle right now.
In a candid interview with Mihir Bhatt of Zee Media Corp, Raghuram Rajan shares his views on RBI`s monetary stance, India`s growth prospects, inflation and much more.
Whole country is in an optimistic mood right now , but on behalf of our readers I would like to ask when will ‘Acche Din‘ come for borrowers?
I think acche din for borrowers will take some time. You know to offer cheaper lending rates even FD rates will have to come down. In the current inflationary scenario I don’t see it happening. We will also have to look at monsoon season progress and specially food inflation and crude prices. So there are lot of moving parts in this.
Can we expect rates to fall by end of this fiscal?
I think first and foremost, inflation has to sustain at lower levels. I don’t want a situation where we cut rates in pressure and then demand spurt causes inflation to spike again. This would result in RBI once again having a re-look at rate cut. That’s why I said lets fight with inflation once and for all.
Do you think government is moving in sync as far as managing growth and fiscal consolidation is concerned ?
The budget had lot of positives. The target of 4.1% on fiscal deficit is a challenging but reasonable target. Had growth been higher this would not have been such a challenge. New government`s initiatives on GST and expenditure commission reforms are encouraging. Also keeping MSP in check on various commodities is a move in right direction.
What are you picking up from bankers since they sense the pulse of economy on real time basis ?
I would say retail credit demand is pretty strong. The demand for credit for large projects is still low. But they typically take time to revive and with government’s focus on infrastructure I think this should start picking up by end of this calendar year. The cut in SLR and relief in bond markets are steps by RBI to keep this momentum in the right direction.
What’s your take on recent arrest in case of Syndicate Bank CMD under bribe charges. Obviously we are not trying to generalize but is it a concern? The governance in PSU banks need overhauling?
Like you said I don’t see problems in all PSU banks. Some of them are doing extremely well and even better then private banks in case of recovery etc. But we need to change the basic framework in which a CMD operates. First of all he needs to have a longer tenure rather then few months which is the case right now. They should have at least 3 to 5 years in hand to implement vision. Also the post of CMD needs to be split. Chairman can be non executive and MD – CEO can manage banks professionally. Also we need to strengthen the board with more efficient independent board members. In case of PSU’s lot of external forces are at play in decision making. This has to stop. The decision making has to be based on merit. Yes, there are national interest obligations for PSU’s but they can`t be at the cost of bank`s balance sheet. So while a PSU can and should fund a project may be at a thinner margin compared to a private bank, but the project viability has to be kept in mind at all times. Banks also need to hire better talent at mid level which has stopped. PSU bank pay scales need to improve urgently. May be not at par with private players but there is case for improvement. There clearly is need for closer supervision of PSU banks in operations. But that doesn’t mean that currently they are doing nothing right.
Will RBI help achieve this?
PSU banks are owned by Government of India. We can recommend and we have done that already. All the measures mentioned by me are with the government and it is up to them to act on it. It is a relative thing. In 2008 these same PSU’s were better than private banks. But that was different time. Today they do have more NPA’s because of their funding was actually to the projects which could not take off.
Are NPA’s the ‘faultline’ in Indian banking system?
I wouldn’t say it’s a fault line. Lot of NPA’s will start unwinding as stuck projects will start moving on. But banks need to very vigilantly look at resolving existing NPA issues.
What about willful defaulters? Are you working on steps to choke their funding pipelines which are often misused?
Yes, we are in the process of introducing measures which will curb limitless fund raising by willful defaulters. We have seen cases of promoters borrowing money and using it for purpose other than mentioned. They have even transferred it to other companies in some cases. It makes no sense if a willful defaulter is defaulting on bank loan and raising money in capital market or somewhere else. This needs to stop and we are working towards that.
Finally what’s your take on acche din, global scenario and India’s love for gold import?
The sentiment has changed a lot after the new govt has taken over and stability is key to this sentimental improvement. But we need to remember that things don’t change overnight. As far as gold imports are concerned. I think it will be sometime before we see some of the restrictions on gold import see being removed. The CAD will have to be down consistently.
What about global scenario?
You know every year we start the year on optimistic note that this year will be better. This year was no different. But first quarter US economy numbers were not encouraging at all. So there are lot of moving parts from Ukraine to Gaza to crude to the recovery and finally rates going up. But I strongly feel that India is well positioned to take advantage of global scenario and rate cycle right now. I am much more confident about India at this point compared to global prospects.