One of outgoing RBI governor Raghuram Rajan’s biggest agendas was the clean up of bank balance sheets, ridding them of the build up of bad loans. Photo: HT
Raghuram Rajan will announce his final monetary policy on Tuesday as the governor of the Reserve Bank of India (RBI). While a Mint poll of 10 economists and bankers has said that the central banker will hold key policy rates, here are five things he might want to look at:
1) Inflation: While RBI has flagged the near term upside risks to inflation, this policy gains significance because the government has formally accepted the 4% inflation target with a 2 percentage point upper and lower tolerance levels. It would be interesting to see whether the RBI talks about the glide path to reach that level.
2) Monetary Policy Committee: The new MPC regime is expected to take over from the RBI Governor while deciding on the monetary policy, an idea that Rajan had himself. The MPC is expected to have members from the government as well as the RBI, who will decide on the direction of policy rates on the basis of a majority vote. However, there is still no clarity on who the government representatives would be.
Also Read: Raghuram Rajan’s final RBI policy review to hold line against inflation
3) Corporate bonds: While the agenda to deepen the corporate bond market has been pushed by the RBI for decades now, under Rajan the efforts solidified and the RBI began work on including corporate bonds in repo transactions. According to former RBI Deputy Governor, HR Khan, who closely worked on the policy, this would be crucial in deepening the corporate bond market in India. A group of three different regulators was formed and discussions are still on.
4) Liquidity: Liquidity in the banking system has moved to neutral. This has helped improve transmission as well. While RBI has cut the policy rate by a cumulative 150 basis points since last year, SBI’s benchmark lending rate is now 90 bps lower. But there’s still more work to be done and further tweaks might be introduced in the marginal cost lending rate system.
Also Read: RBI seen maintaining status quo in Raghuram Rajan’s last policy review
5) Bank clean up: One of Rajan’s biggest agendas as the RBI governor was the clean up of bank balance sheets, ridding them of the build up of bad loans. In December 2015, he had stated that banks would have time till March 2017 to do enough to clean up their books. However, he won’t be around at the RBI to see it through. Moreover, banks are nowhere close to actually resolving these issues and are still grappling with higher provisions to be made on these loans.
[“Source-Livemint”]
