The six-member monetary policy committee (MPC), on Friday, voted unanimously to keep the policy repo rate unchanged at 4 per cent. They also decided to persist with an accommodative stance of monetary policy till the prospects of a sustained recovery are well secured while closely monitoring the evolving outlook for inflation. In a virtual interaction with the media, Governor Shaktikanta Das said demand has moved beyond pent up demand to actual demand. Excerpts:

By when can we expect full normalisation of the various Covid-19 related liquidity measures?

The market has its own way of interpreting things. But we have said accommodative stance into the next year…The economic situation is constantly evolving. So, we will take a call. We have not spelt out June as the date when this forward guidance (of continuing with the accommodative stance as long as necessary – at least during the current financial year and into the next financial year) would end….And, our liquidity stance continues to be accommodative, and in consonance with the overall monetary policy stance of being accommodative.

You mentioned that the maintenance of financial stability and the orderly evolution of the yield curve were explicitly regarded as public goods. But bank depositors are getting negative returns?

With regard to the orderly evolution of the yield curve, we have said that it is a public good. I could not agree that it was only for one segment of the market, that is the G-Sec. Basically, G-Sec is the benchmark on which the entire corporate bond market and all the bonds are priced. So, the bond pricing as well as a host of other activities and segments of the financial market, the corporate bond market, and even to some extent the bank lending … are also influenced by the G-Sec rates. So, they act as the benchmark, based on which interest rates and yields of all other segments are built on. So, therefore, it is a public good…the G-Sec rates impact a wider cross section of the financial markets. I have said financial stability and orderly evolution of yield curve are public goods.

Banks are reducing their lending rates, a part of it goes to the savers. We must also recognise that small savings schemes, which the government runs, or the RBI deposit scheme, which we run, I think, are other avenues…small savers can use those facilities.

Will banks’ deposit mobilisation and mutual funds inflows not be impacted if retail investors are allowed to access the G-Sec market online and open Gilt Accounts with the RBI?

As the GDP grows, as the Indian economy comes back to a higher growth trajectory, as the size of the economy grows, the total volume of savings and deposits will expand. Banks have so many functions and services which they render. We feel it will not undermine the deposits of banks or MFs (inflows). It is one more avenue that is made available. The process has been made now much easier and, in any case, please remember, even today, the small savings rates are much higher than the bank deposits. Notwithstanding that, bank deposits this year have grown by 11.3 per cent. So, we don’t feel that it will, in any manner, cut into the bank deposits. Size of the pie is too large to support. This is a kind of new access we are giving.

Is the growth being driven by fresh consumer demand and not pent up demand as seen earlier?

This is becoming increasingly evident and we have been tracking some high-speed indicators. In almost all segments, we are seeing a sort of growth in demand. So, therefore, demand has moved beyond pent up demand to actual demand coming up as the lockdown gets steadily lifted, and movements are allowed within cities and across the country. So, therefore, demand will pick up. I think, demand curve is expected to be now much more sustained.

You projected GNPAs at 13.5 per cent by September 2021 under the baseline scenario. But banks and credit rating agencies are painting a different picture. Are you expecting more stress in the banking system than what banks and credit rating agencies are seeing?

We have been collecting data from various banks with regard to the size of their individual stress, what kind of NPAs they are expecting, etc. As a part of our regular supervision, we do an independent assessment of the actual state of NPAs and we also take it up with banks to make provisions in their accounts proactively.

And I am happy to note that many banks have very proactively made provisions in anticipation of higher NPAs. And that is a very positive feature of the banking sector, in the sense that there is wide realisation that they need to provide adequately for the build up of stress.

So, therefore, we are constantly monitoring it and the impact of the standstill which is there on asset classification, and the impact of the Covid-related resolution framework. All this data is flowing in to us on a daily basis. So, we will have a clearer picture as we move ahead.

The economic survey has called for an asset quality review (AQR). Are you planning to conduct such a review?

Das: As a part of our supervision, in the last two years or so, we have really deepened our supervision. In the context of NBFCs, I had said two years ago that short of announcing an AQR, our supervision apparatus in doing a deep dive to get a clear picture about the true state of affairs with regard to the NPAs/ stressed assets.

Similarly, with regard to the banks, it is a part of our supervisory process – we are doing a deep dive, making our own assessment of the true state of the NPAs in each of the banks. So, we have a sense of the overall situation. So, we are exactly doing what an AQR needs to do and that is already happening as a part of our supervision.

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