RBI Governor Raghuram Rajan and Deputy Governor H R Khan at the RBI headquarters in Mumbai on Tuesday. (Express Photo: Nirmal Harindran) RBI Governor Raghuram Rajan and Deputy Governor H R Khan at the RBI headquarters in Mumbai on Tuesday. (Express Photo: Nirmal Harindran)

Reserve Bank Governor Raghuram Rajan spoke about a host of issues relating to banks, the monetary policy, cleaning up balance sheets of banks and the unfinished agenda at a select media interaction after unveiling the bi-monthly monetary policy. Excerpts:

On the unfinished agenda

This is a $1,500 per capita economy. We have to take it to $50,000 which is where Singapore is. There are a lot of things to do … Certainly going towards the glide path of inflation as well as cleaning banks’ balance sheets and making much more able to support lending would be two short-run issues. Continuing issues would be financial inclusion, last mile payment banks, make the UPI (unified payments interface) work and the payment system. As the world normalises, we will be able to liberalise more significantly at that point. I think the market development, payment development and inclusion … these are all works in progress. We are a relatively poor economy and we want to wipe the tear of every child. At least we want to be the middle income … $6,000-7,000 (per capita). If we grow 8-9 per cent, every nine years we double the income. That’s still two decades.

On weak assets of banks

You have to look upfront whether this is going to improve performance of the assets. I have absolutely no sympathy if you have ended in a problem because you were trying to postpone recognition or avoid recognition and then going to say what I am going to do with my assets. We have a variety of possibilities like 5/25, SDR and restructuring … to restructure any which way you want. They can’t continuously look at the government or the regulator for help. Find a way to get off this situation. Find a guy to buy all this stuff from you.

On the possibility of bank collapse

I don’t think there’s any chance that PSU banks will fail simply because the Government of India is behind PSU banks. The government said repeatedly whatever capital is needed we will provide. Of course, there’s no point in throwing good money at bad money. They have to figure out what their competence is. Maybe some of them can reconfigure as small finance banks rather than universal banks.

On cleaning up of banks

Deeply stressed assets were identified and dealt with in the last two quarters. Going forward there are assets which are weak where some action probably may be needed. Banks will have to figure it out … may be something which is drifting towards stress. Maybe there is a project which is delayed and there’s a possibility of putting it on track. By that that I don’t mean classifying it, I mean action to put it on track. I think that process is what banks are looking at the course of this year.

On the Monetary Policy Committee

You have to ask the government. Sooner the committee starts functioning the better. The legislation is in place and it’s an issue the government has to respond. Clearly the job of Governor is to set an overall direction. The overall direction also comes from listening to people on how things have to take place and move forward. My attempt has also been to institutionalise as much as the processes we can. Why is there a Monetary policy Committee? One of the concerns was that monetary policy historically has been based on individuals. Right from the Urjit Patel committee report, we have been pushing at the RBI … you institutionalise the process of monetary policy setting and move it way from the individuals. Individuals may come and go but the institutions remain.

On policy making

Policy making everywhere is based on uncertain data. There is always a feel that you have for broad directions … the composite of data without necessarily having a precise model because the model requires clean data. You also have to measure the balance of risks. What are the risks of going wrong on the upside and on the downside? What are the costs of going wrong? In certain areas surprise is a tool.

On Panama Papers investigation

All I can say is investigation is underway. We can’t give up-to-the minute description.

On not allowing corporates in banking

I think we or for that matter most jurisdictions are capable of dealing with the issues that arise with the possibility of self-lending in corporate houses. The supervisory requirement is to avoid that kind of problem and when we look at the banking crises… self-lending is a big factor. For that reason it’s appropriate as a prudent policy.

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