Clean up balance sheets, cut credit risk: Rajan tells India Inc

RBI Governor Raghuram Rajan has a simple message for those in India Inc clamouring for lower interest rates — put your house in order, repair your balance sheets and reduce the risk premium that you are paying.

Arguing that the RBI has done what it could in the given circumstances, he said, if interest rates are still high, they remain so, partly because banks have not fully passed on the benefits to borrowers and also because borrowers have not done much towards bringing down their credit risk.

Asked about the delay in transmission of the monetary policy signals, he said that the message he was getting from bankers was that they were not cutting rates fully as new borrowers had not started coming in sufficiently large numbers.

He said that a balance had to be struck between the interest of savers and borrowers. He said economic recovery is still work in progress and expected that loan growth will start happening soon, perhaps during the next few months.

Monsoon outlook A good monsoon would be a catalyst for a turnaround in the economy although he conceded that monsoon outlook was currently clouded with uncertainty.

Questioned about the controversy over the draft Indian Financial Code, which contain clauses that seem to limit the RBI’s role in the constitution of the monetary policy committee, Rajan confirmed what Finance Secretary Rajiv Mehrishi had said on Monday of an agreement having been reached between the government and the RBI on the issue.

He expressed satisfaction over what he called a ‘fair agreement’ and sought to set at rest speculation about differences between the central bank and the government on the issue, calling them ‘overblown’.

“The monetary policy committee needs to develop as an institution and have a character of its own,” he said.

Rajan said that having a committee was part of a process to de-personalise the policy and to institutionalise this arrangement in tandem with the monetary policy framework signed recently with the government. A committee system would be less prone to mistakes, less susceptible to pressure and would ensure continuity of the policy trajectory that would outlast a governor’s term, and minimise surprises, he said.

COMMENT NOW