The Hindu Business Line : ‘Watch on high exposure in capital market, realty’

“At this juncture we may intensify the supervisory review of select banks where the exposure continues to be high, relative to their balance sheets-with respect to capital markets or real estate. From a supervisory angle, we will contemplate some action on those individual banks,” Dr Reddy said.

The Governor said that the matter was internally discussed, but since there has been a slow down in growth of overall non-food credit, it was not considered a systemic issue.

The outstanding loans to commercial real estate jumped 69.7 per cent to Rs 46,295 crore as on May 25, 2007, against Rs 27,285 crore a year ago.

“If we come to the conclusion that we are not satisfied with the asset quality, then we may insist on action which will be bank-specific. Given the relationship, between bankers and the banking regulator, discussion brings about the desirable outcome,” Dr Reddy said.

On inflation, the Governor said that it was important that people develop the confidence about macro policy makers ensuring reasonable inflation.

“Corporates and financial intermediaries run the economic machine but people who matter ultimately are households. For the RBI, the focus is households and for the households, inflation is important,” he said

RBI’s priorities

Talking about the central bank’s priorities, Dr Reddy said, “We had to remind ourselves that our growth is domestic demand driven. We also have to recognise that in more recent years over 95 per cent of investment in India is from domestic savings. So, our priorities are domestic inflation, inflation expectations, domestic investment-savings balance and domestic financial stability.”

On inflation

The RBI Governor, however, stressed on the importance of Indian inflation being consistent with global inflation. “Since the Indian economy is attempting further liberalisation and integration with the global economy, a higher inflation than the rest of the global economy has inherent risks for macro stability. It is also necessary for the RBI to express the importance of bringing inflations to levels that is consistent with the leading global economies”.

Repo, reverse repo

The quarterly review of the monetary policy asserts the RBI’s flexibility to conduct repo or reverse repo auctions at a fixed or at variable rates as circumstances warrant. The RBI will use fixed rate, variable rate, uniform price, multiple price instruments, 7 day, 14 day or even 20 day repos.

“These options were always available. We have stated it to emphasise the challenge of liquidity and the need to use multiple instruments,” Dr Reddy said.