Economy on the recovery path, says Rajan...

Our Bureau Chennai | Updated on January 24, 2018 Published on July 02, 2015

RBI Governor Raghuram Rajan   -  Bijoy Ghosh

Reserve Bank of India (RBI) Governor Raghuram Rajan listens to a question at a news conference after the bi-monthly monetary policy review in Mumbai, India, June 2, 2015. REUTERS/Danish Siddiqui

Sees pick up in investments, admits that some banks will need capital infusion

In what should come as music to the government’s ears, RBI Governor Raghuram Rajan has said the economy is on the recovery path with signs of capital investments picking up.

Addressing the media after the Reserve Bank of India’s board meeting here, he said the recovery could happen faster. The government was trying to put stalled projects back on track and the monsoon has so far been above normal. Broadly speaking, “we need to continue to do the spadework to create sustainable growth”, said Rajan.

On inflation, he said the RBI was watching the situation. The news on the monsoon front has been good. It has thus far been significantly above normal. The IMD says the situation may weaken in the next few months. “Let us see what happens. Forecasting is a difficult job,” he said.

In its last monetary policy review in June, the RBI had cut the repo rate by 25 basis points to 7.25 per cent, as headline inflation had evolved along the projected path. However, the central bank had cautioned that risks to inflation — a poor monsoon, rising crude oil prices and the external environment — remained.

On Thursday, Rajan expressed concerns about exports as “it is an area of relative weakness”, which he attributed to the weak state of the global economy.

Asset quality worries

On banks’ asset quality, he said it is an ongoing issue and that the RBI is working with banks to ensure that they recognise problems early.

Once they identified problems, and took remedial action, things would bounce back, he said. The government also has to play a role in terms of large infrastructure projects by ensuring a healthy capital structure.

If the capital structure for long-dated projects was not appropriate in the past, he said it needed to be restructured to put them back on track.

“However, I can’t give a date for when things will improve; we are doing every thing we can to improve asset quality,” he said, adding that the government was also thinking of giving more capital to banks, which would provide them with a buffer.

Every period of financial stress suggests that early acknowledgement of problems and putting projects back on track is important, noted Rajan. Some banks will need capital to do that, and “we hope this capital infusion will help them”, he said.

The Governor announced that the RBI would put in place a regulatory framework to allow a new kind of non-banking finance company that could act as an account aggregator to enable the common man to see all his accounts, across financial institutions, in a common format.

Greek crisis

Allaying concerns over the crisis in Greece and its impact on India, he said the Greece issue is an evolving situation, and India’s direct exposure to the debt-laden nation is “very, very limited”.

There may be some indirect impact. For example, he said, the Greece issue may impact exchange rates or any untoward development in that country could dampen the sentiment of global investors. But proper analysis would help them realise that the India story is very good and continues to be a good one, opined Rajan. “We not only have good macro policies in place, but our growth prospects are also quite healthy,” he said.

Published on July 02, 2015

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