Liquidity to remain tight over next few months: RBI Governor Das

Deputy Governor Swaminathan J: These are certain segments where we saw higher slippages in Q2FY25. And it was not very surprising to us because these segments saw an outlier growth a year before, and we took some pro-active measures for that. The RBI Governor had also said that in segments where enhanced slippages are being witnessed, we have requested banks and NBFCs to strengthen their underwriting standards and to step-up collection efforts to ensure stress does not translate into NPAs.

We continue to engage with entities wherever we see any outlier behaviour and at system level it is still not big concern, 20-30 basis points (bps) up-tick in stress is something which we are confident that entities would be able to handle. In certain entities where these numbers are outlier, we deal with them on bilateral basis, examining the steps they are taking to ensure stress is not wider spread.

We have enough levers available via SROs to control stress. SROs in the MFI space are taking adequate steps to sensitise their members to adhere to prudential guidelines of the RBI and ensure that household income assessment, and the repayment obligation towards net monthly income etc are strictly adhered to avoid the push affect. Just respond to credit demand rather than give loans to achieve targets. These measures should be enough to ensure that balance is restored in this segment.

Governor Shaktikanta Das: I am not giving you any headline, it is better we stick to monetary policy.

Deputy Governor Michael Patra: If you look at the demand side, the main problem is investment. On the supply side, main problem is manufacturing, and the two are intertwined. In manufacturing, the biggest issue is the slump in sales growth and that is reflecting inflation hitting the urban consumer. When sales growth is down, companies do not want to invest in new assets as they see demand is moderate and it can be met from existing capacity. Since they don’t want to engage in new capacity creation, investment is down, so the underlying slowdown in growth is because of inflation.

Das: We expect tight liquidity over next few months for various reasons. We expect tax-related outflows from the system, both direct tax in middle of December, and then GST. Together with that, there is a possibility of increase in currency in circulation, because of busy credit season agricultural activity has now picked up and that requires cash. That will overlap or merge into the harvest season also which requires cash, so the currency in circulation will also likely go up.

And then there have been significant amount of capital outflows in October and November because of FPIs exiting. Dollar inflows at this moment is difficult to quantify. Our assessment is that liquidity conditions will remain tight and let us also bear in mind the fact that CRR increase was done in April 2022, it was a temporary measure, it has served its purpose, and it was time to normalise it.

Das: Co-ordination between the RBI and government has been there, is there and will continue to be there. That is a constant process and it continues. Whenever we have any thoughts or concerns, we share it with government. That engagement and coordination continues. In a recent event, I had highlighted the importance of fiscal and monetary coordination. That is very important and has proved its strength during stressful times of Covid-19, and thereafter when Ukraine war started and inflation spiked.

Deputy Governor M Rajeshwar Rao: These measures are intended to enhance capital flows. There is a scope for non-resident Indians or eligible Indians who are eligible to invest in FCRN (B) to increase their deposit base in India, and that is purely what has been contemplated at this point in time.

Das: And it is a temporary measure which is there till March 31, 2025.

Das: Let the policy come first. With regard to BRICS currency, it was just an idea raised by one of the member country, and it was discussed. No decision has been taken in the matter. The geographical spread of countries also has to be kept in mind. The Euro-zone has a single currency and are geographically closely based, while members of the BRICS are spread all over. With regard to de-dollarisation etc, as far as India is concerned, we have taken no steps to de-dollarise. All that we have done is permitting opening of Vostro accounts and we have entered into agreement with two countries to do local currency denominated trade…De-dollarisation is not our objective, not on table at all.