RBI wary of excess liquidity, will release funds only if absolutely needed, says Das, stresses on central bank’s independence

The Reserve Bank of India has not yet taken a decision regarding the quantum of the interim dividend it will transfer to the government, RBI Governor Shaktikanta Das said on Monday. The central bank would not delay in announcing the decision once made, he said.

Mr. Das was responding to queries based on a Reuters report that the RBI would be transferring anywhere between ₹30,000 and 40,000 crore to the Centre as interim dividend. “There have been reports, even I have seen them,” Mr. Das said at a press conference. “As and when the RBI takes any decision on any issues, you will come to know about it. A lot of correspondence goes on between the government and the RBI, a lot of discussions take place.But as and when there is a decision, the RBI will not delay in announcing the decisions”.

The issue of transferring dividends to the Centre has been the source of considerable tension between the central bank and the government, with the RBI recently setting up a committee under the chairmanship of former RBI Governor Bimal Jalan to examine how much the RBI needs to maintain its reserves, and how much can be transferred to the government.

Mr. Das said that he would be meeting the NBFCs on Tuesday to get a better idea of their liquidity situation.

He said even though the RBI was monitoring the liquidity situation closely, it would be careful to infuse liquidity only as and when it was absolutely necessary, so as to avoid a situation of excess liquidity in the system.

“The liquidity issue has been mentioned time and again and I have got several inputs over the last month since I assumed charge at the RBI,” Mr. Das said. “I have had several meetings with the stakeholders and we have a sense of the current liquidity situation. We do believe that the liquidity requirements of the economy and financial institutions to a great extent are met,” Mr. Das said.

“Regarding liquidity, the RBI is constantly monitoring the situation and will take steps whenever there is a need to deal with a liquidity deficit if it is noticed,” the Governor added. “At the same time, I must also add that the RBI would not like a situation where liquidity becomes a kind of loose money. Any infusion of liquidity will have to be very carefully considered and has to be need-based.”

“Therefore, caution and care has to be exercised by the RBI so that excess liquidity, which sometimes has certain adverse consequences, is not created,” he said.

Mr. Das said that he held a two-hour long meeting with MSME associations as well, on Monday, during which he achieved greater clarity on the issues to do with the sector. “The banks have been asked to look at the viability of individual MSME before making the restructuring scheme applicable to them. We hope that the banks and the MSME units work together so that the scheme is implemented in letter and spirit,” he said.

Restructuring scheme

He said that the viability of each MSME unit will be gauged to ascertain whether the restructuring scheme would be available or not.

“One issue which engages our attention on almost a daily basis is the status of NPAs and the health of PSBs,” Mr. Das said.

“There is definitely improvement noticed in the reduction of NPA levels in the banking sector as a whole and with PSBs in particular. But the improvements have to be sustained if the banks have to fulfill their responsibilities and some of the banks have to become healthy.”

On farm loans waivers, the RBI Governor said that such loans are based on States’ fiscal capacities, but added that generalised farm loan waivers did have an impact on the credit culture.

He added that though the RBI did not want to “throttle the functioning of the bank”, it did realise that there was a need for governance reforms to be implemented.

Mr. Das also indirectly stressed on the independence of the central bank, saying that the final decision on issues within its ambit would be RBI’s. “The RBI will listen to everybody and interact with everybody including the government, but the final decision will be taken by the RBI in an objective manner to the best of its abilities,” Mr. Das said.