Mumbai: The news on the economy will only start getting better from now, Reserve Bank of India (RBI) governor Raghuram Rajan said in an interview, reflecting a growing view in many quarters that the Indian economy has bottomed out. He listed the factors behind his assessment: rising exports in the second quarter; the possibility that the US\u2019s problems would be temporary and that lawmakers in that country would arrive at a fiscal deal; stronger agri production; and the revival of many projects that were stalled.
\nRead the full interview here.
\nRajan added that the first signs of revival would likely happen in the sector that went down first\u2014large infrastructure projects. It was in 2010-11 that \u201cthe first large projects started stalling,\u201d he said. When these projects are revived, Rajan said, there are benefits from the actual project itself, the liquidity that is released into the market, and the spillover effect on suppliers, some of whom are medium and small enterprises. The first set of stalled projects were revived in January, he said, and the impact is beginning to be seen now.
\nThe Cabinet Committee of Investment was created to fast-track stalled projects. Since January, it has revived, at least on paper, 171 projects involving a total investment of Rs 1.69 lakh crore (or trillion)
\nIndia\u2019s economy expanded by 5% in 2012-13, a decade\u2019s low, and it grew by 4.4% in the first quarter of 2013-14, a steep fall for an economy that expanded at an average rate of 8.3% between 2004-5 and 2001-12.
\nThat, and the stalling of large infrastructure projects, partly due to issues related to financial closure, but also due to delays in acquiring land or securing environmental clearances have taken the sheen of the so-called India story for investors, both foreign and domestic. The situation has been exacerbated by a spate of corruption scandals involving the government, the resultant policy paralysis, and some retrograde changes in tax laws as the country\u2019s administrators tried to come to grips with a rising fiscal deficit.
\nIndia needs two transformations, Rajan said: \u201cMore investment, and less consumption, at least of some kinds; and more savings, financial savings.\u201d
\nRajan said it was heartening to see large Indian companies selling assets (as reported by Mint on Tuesday ). \u201cWe need more of that,\u201d he added, explaining that other companies that were flush with funds, or private equity investors, even asset reconstruction companies could buy these assets.
\nThe process helps everyone, he argued. \u201cThe liquidity strapped entities can get financial space, can start bidding again, start fulfilling some of their commitments.\u201d
\nStill, Rajan admitted that non-performing assets (NPAs) and restructured assets of banks, were, at 10% of the total assets of banks, at a level that was \u201cnot comfortable.\u201d
\nGross bad loans at India\u2019s banks topped Rs2 trillion in the three months ended 30 September. Total loans restructured by banks under the CDR platform on a cumulative basis rose to Rs2.65 trillion at the end of September.
\nRajan said banks needed to closely monitor these, and act \u2013 some assets could be recovered by rolling over debt; others by infusing new blood in the management, and still others by simply pumping in more money. But banks have to be careful with how they restructure debt and bail out promoters, he cautioned. They cannot bail out promoters who have siphoned off money, he said. Nor can they restructure debt in such a way that all the downside is borne by the banks and the upside, by the promoters. \u201cThe pain of restructuring has to be borne fairly,\u201d he said.
\nSuch restructuring and asset sales could help increase capacity and \u201cpart of our inflationary problem is supply,\u201d Rajan said.
\n\u201cInflation is the primary concern,\u201d Rajan said, \u201cbut we will keep in mind the state of the economy.\u201d
\nHe refused to be drawn into a discussion on his stance regarding interest rates and said part of the reason why the market was confused by RBI\u2019s moves was because \u201cit takes a 25 basis point repo increase and then delves deep into the psychological attributes (behind this).\u201d Data will drive the central bank\u2019s next step, he explained. \u201cPositive, negative, neutral \u2013 wait till the end of the month,\u201d Rajan said. The next monetary policy review is on 29 October.
\nRajan said RBI was comfortable with where the rupee is, which is why it has started unwinding some of the liquidity tightening measures put in place over the past two months.
\nAnswering a question on the issue of new bank licences he said there was no number RBI had in mind and that this would be a function of not just the credentials and business models of the applicants, but also the number of banks that could be supported by the market. \u201cHow many will depend on Rs.fit and proper\u2019 (criteria laid down) and economic needs,\u201d he added.
\nNot everybody needs to do plain vanilla banking, Rajan said. Some banks could focus on different segments; others could use different technologies; and still others could offer different products.<\/p>\n","protected":false},"excerpt":{"rendered":"
Mumbai: The news on the economy will only start getting better from now, Reserve Bank of India (RBI) governor Raghuram Rajan said in an interview,…<\/p>\n","protected":false},"author":1,"featured_media":557,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1123","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"acf":[],"_links":{"self":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts\/1123","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/comments?post=1123"}],"version-history":[{"count":1,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts\/1123\/revisions"}],"predecessor-version":[{"id":1124,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts\/1123\/revisions\/1124"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/media\/557"}],"wp:attachment":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/media?parent=1123"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/categories?post=1123"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/tags?post=1123"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}