RBI Governor Shaktikanta Das On Economy, Banks And Regulations: Exclusive

The Reserve Bank of India, over the last two years, has used multiple tools apart from the monetary policy to ensure appropriate liquidity in a slowing Indian economy. Along with the government, it played an active part in pulling the country’s financial sector out of bad loan and liquidity crises, all the while keeping inflation within the mandated range.

In this conversation with BloombergQuint, RBI Governor Shaktikanta Das delves into the central bank’s priorities, the nation’s economy, domestic banks, regulations and the way forward.

Watch the conversation here:

Here are the key highlights from the interview:

RBI’s Top Priorities At This Juncture

A central bank like Reserve Bank has multifarious responsibilities
RBI’s domain much wider than Bank of England or U.S. Federal Reserve
Main focus is maintaining financial stability, supporting growth and price stability
Focus is also on sharpening regulation and supervisory functions

Is Any SBI-Yes Bank Move Due To An RBI Nudge?

Do not wish to comment on a media report
RBI remains committed that financial and banking system is strong and stable
Banking system remains safe and stable

Also Read: Government Puts Yes Bank Under Moratorium, RBI Supersedes Board, Withdrawals Capped At Rs 50,000

The Many Accidents In The Financial Sector

Government's capital infusion helped addressing the challenges that AQR brought on public sector banks
Challenges from AQR largely addressed, NPA picture now better than what it was in 2014-2015
Have frequently issued guidelines to improve governance in public and private sector
Have stepped up the depth and quality of RBI’s supervision of banks
Hope to issue more guidelines on governance of public and private sector banks
Bank governance guidelines currently work-in-progress
Have identified some areas that need improvement over the last 18 months

Also Read: RBI’s Responsibilities ‘Much Wider’ Than U.S. Fed, BOE: Governor Shaktikanta Das

Remaining Risks To NBFCs

Have only recently begun regulating housing finance companies
Remain in constant contact with National Housing Bank
NHB will bring any areas of concern to RBI’s notice
Some HFCs coming out of difficulty, need to raise capital to improve liquidity
Risk to system from housing finance companies is now much less

Improving RBI’s Supervisory System

First layer of fraud control remains with the regulated entity
RBI is not sitting at the financial entity round the clock monitoring each operation
RBI expects bank and NBFC managements to have robust internal mechanisms to check fraud
Have to ensure that same kind of fraud is not repeated, in that organisation or elsewhere

Will Higher Penalties Deter Fraud?

RBI’s enforcement department has imposed big amounts as penalties
RBI’s penalty on listed bank or NBFCs comes with reputational impact

Also Read: RBI To Set Up Department That Would Focus On Fintech: Exclusive

Will Covid-19 Delay The Recovery?

Definitely see global growth being pulled down due to coronavirus outbreak
SARS pulled China’s growth down by 1% at a time when China was far less vital to world economy
Don’t think IMF’s current 0.4% growth impact projection is the final word on coronavirus hit
India more integrated to global economy than during SARS
But India is still not a major part of global value chain
Growth impact on India may not be as much as it is in some other countries
Some growth impact on sectors in trade and manufacturing, which have large interlinkage with China
Will be in better position to assess growth impact of coronavirus by the time of the next MPC meet

Does RBI Need To Make An Emergency Move?

If required, the RBI will act as and when required and as in the past, the RBI will be proactive and act in time.

Shaktikanta Das, Governor, RBI

What’s Led To This Stretch Of Low-Growth?

Have been in a period of low growth around the world
Twin balance-sheet problem, bank stress, IL&FS crisis successively weighed down on economy
Just as things were beginning to look up, we now have the coronavirus problem
Have seen sentiment turning negative due to coronavirus, In India and around the world
Seeing greater coordination among governments and central banks

India’s Home-Grown Growth Hurdles

Series of government measures over last year have tried to address some domestic factors that hurt growth
Expect this Rabi season to be a bumber crop, will contribute to rural incomes
Low food inflation has meant lower farm incomes, some increase there might mean better incomes
Do see some improvements in some sectors, but too early to say demand has revived
Need to wait for green shoots to be visible in some areas to conclude that things are improving

Dichotomy Between MPC & RBI Messages?

MPC focused on growth too, no dichotomy between thinking of RBI and MPC
Measures taken in last MPC was mainly to ensure better transmission
Aim of last MPC’s moves was not any sort of ‘yield management’
Effort was to ensure transmission of policy rate reduction to corporate bond market
Yields have come down ‘in the process’, not the primary aim

Aim Of RBI’s LTRO

LTRO done to ensure better monetary policy transmission & credit flow
CRR dispensation also done for better credit flow, reduce banks’ cost of funds

RBI’s Toolkit Going Into The Next MPC Meet

MPC will decide what to do when it meets, central bank always has several tools

Is RBI Stepping In Where The MPC Isn’t?

MPC has a defined mandate, all else that’s been done is not in its domain
MPC does not go into the liquidity framework, hence was ‘Part-B’

Full Service Versus Focused Central Bank

RBI has been mandated to undertake several responsibilities
Inflation management is one of the important objectives, but there are others too

Supreme Court Strikes Down RBI’s Cryptocurrency Circular

Studying Supreme Court’s order, it has clearly upheld RBI’s regulatory powers
Will decide on way forward on crypto after thorough examination
RBI to set up an exclusive fintech department to give focus on digital transactions & technology

Intense Competition In The Payments Space

RBI keeping track of what is happening in the payment space
Government has already issued guidelines for those that are in e-commerce
Will watch and, if required, intervene at the appropriate time
Should not kill something new that’s happening right on day-one
Expect those whose capital is in the payment space to be responsible with it

New Umbrella Entity For Retail Payments

Want to disperse any concentration risk in retail payments
Want to ensure right amount of competition in retail payment framework
Need ‘a few more players’ besides NPCI

Experiments With ‘Digital Banks’

See ‘digital banks’ happening, now or in the future
Doing KYC, application, and subsequent lending can happen digitally

‘RBI’s Reputation Remains Intact’

Would not agree with assessment that RBI has lost its ‘pristine image’
Have seen bank failures happen frequently in U.S. but never in India
A major bank has never been allowed to collapse in India
Last 4-5 years has had challenges, institution’s response is what’s important
RBI has responded to all the challenges that have come before it
Response to 2008 crisis or 2013 taper tantrum can’t be weighed as ‘reputational risk’
Even today, RBI enjoys a lot of trust and public confidence
Seeing RBI ready react to coronavirus, did to growth slump, NBFC crisis, post-AQR
As an organisation, RBI’s reputation and robustness remain intact