indica News Bureau-
Governor of the Reserve Bank of India (RBI), Shaktikanta Das who has completed a year as the chief of RBI said there are structural issues which need to be addressed and that food inflation seems transient.
Earlier this month, Governor of the Reserve Bank of India (RBI), Shaktikanta Das had decided to hold interest rates during review of monetary policy and has now made a statement saying that the spike in food inflation is transient but the bank has to wait for confirmation of the same.
” At this point in time it [food inflation] also looks transient. And going forward it should come down, but we need some time to watch that it is indeed transient”, “he said as he assured that the food inflation is closely monitored, reported The Hindu.
He also added that there are structural issues which needed to be addressed, referring to the current economic slowdown. “We have said in our annual report that it would appear that the current slowdown is cyclical. However, there are structural factors also. Without getting into categorization of the current slowdown, the focus should be on steps [that] need to be taken by the fiscal and monetary authorities. There has to be some countercyclical steps,” he said.
Commenting on the Monetary Policy Committee (MPC), constitutes in 2016, he said that three external experts and the members of the committee together brainstorm to improve the quality of decision-making and the final outcome and they had worked well in targeting inflation.
” At the end of the day, inflation has remained around 4% over the last three years so that the targets have been maintained. Without a target, we had a situation about five or six years ago when CPI [consumer price index] inflation was 10%. Also the minutes of the MPC meeting are also published which brings in a greater transparency to the process of decision-making”, he said.
Answering questions about core inflation and headline CPI inflation as major targets he added, “What matters more for the common man of our country is the food inflation. Therefore, you cannot keep it away; the weightage of which is 47-48% in the overall CPI basket. Headline inflation is something that everybody understands while core inflation excludes food and fuel, which leads to lack of clarity”
Commenting on the monetary transmission, he said, “First, transmission does take time. Two, the system liquidity which was in deficit till the end of May, is in surplus from June 1 onwards and hugely surplus. Every day, we are absorbing two-and-a-half lakh crore. So we have kept the system in comfortable and surplus liquidity. The third thing is that the external benchmark [for loan pricing] which we had introduced from October 1. Going forward, the impact of external benchmark will be felt more and more.”
He also told the Hindu that the RBI is monitoring 100 NBFCs, 50 at the central office, 50 by regional centers, “We have identified the vulnerabilities them and our officers are constantly engaged with the promoters and management, and nudging them to take necessary, market-related measures like to mobilize additional capital and to deleverage, to show better recoveries, etc.”
Das also commented on bank failure and PNB scam, despite regular inspections saying that there was no RBI representative on the board in case of the urban cooperative bank and that the RBI only supervises the work of the banks, instead of conducting audits and investigations.
Post the PMC Bank failure and the PNB scam, the question that arises is how did they happen when the regulator does regular inspections and also has a representative on the board? How did these escape the attention of the regulators?
“Supervision is done on the basis of certified records by the bank’s management. When that is produced before the RBI supervision team, there is no reason why the RBI should doubt its correctness. It was even decided in our central board meeting to set up a separate department of supervision and a department of regulation. That was because there was lot of interconnectedness between banks, NBFCs, HFCs.
“Along with that, we have said we will also have a college of supervision to provide better skill to our officers. We are creating a separate cadre for supervision officers. We are also going to use technology, data analytics, in a big way. Plus we are also internally setting up a research and analysis wing within the department of supervision which will collate and correlate all the data, see the interconnectedness and will be able to comprehensively look at the banking structure.”
Das also told the journal that a forensic audit is underway to decide on the next step to monetize the assets of PMC banks. “PMC Bank, with the help of outside valuers, are assessing the realizable value of the assets which are securitized by the borrower group. The other assets, including land assets, the realizable value of that asset is also been assessed. So with the permission of the court, the effort is to monetize those assets and put that money into the bank.
“We have formed a coordination mechanism consisting of senior officer from Economic Offences Wing, the Enforcement Directorate, RBI and the administrator of the PMC Bank to quicken the process of the monetization. So only when we have clarity with regard to the actual realizable value of all these assets which I have referred to, we will be able to decide on a next step”, said Das.
He added that the RBI is also trying to strengthen the regulation of cooperative banks along with suggesting the government to make legislative changes too. Das also said that his primary focus, in his second year as RBI Governor will be growth and financial sector issues — financial sector issues like the NPA resolution in the banks, followed by monitoring of NBFC sector.