June 18, 2022 4:19:50 am
Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday said the central bank’s focus was to ensure that growth in the economy reached a stage — the pre-pandemic level — before it started withdrawing liquidity and hiking rates to tame inflation.
Stating that the RBI was not “behind the curve”, Das said the process of getting out of the “chakravyuh” — or withdrawal of the accommodative monetary policy — has taken a little longer. “The process has taken longer because of the Ukraine war getting out of control … However, we are targeting a soft landing,” he said while speaking at the inaugural address at the ‘Modern BFSI’ summit organised by The Financial Express.
During the pandemic, the RBI’s Monetary Policy Committee (MPC) consciously decided to tolerate an inflation which was higher than 4 per cent, up to 6 per cent because the situation required that. “Had we started raising the rates before, what would we have done to the growth in 2021-22? Would it have prevented inflation from spiking? No,” Das said. “We waited for economic growth to reach a stage where it was safe to pull out liquidity,” he added.
“The RBI is in sync with the economy and the trend of economic developments. Our focus was to ensure the financial sector functioned smoothly and support the growth when the economy showed a decline due to Covid. The priority now is inflation,” he said. Retail inflation, which came close to 8 per cent in April, had come down to 7.04 per cent in May.
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On further action on the anvil, Das said, “It depends on the evolving situation. We will respond to the situation accordingly. We are looking at an uncertain situation. Our actions will be suitably calibrated.”
The policy panel of the RBI has hiked policy repo rate by 90 basis points since May this year to tame the rising inflation.
According to Das, while certain developments were challenging, each injection of liquidity is accompanied by a sunset clause. “The variable repo rate auctions were able to deal with the liquidity which came into the system. Around Rs 12.5 lakh crore liquidity was injected into the system to support growth after the Covid pandemic hit the economy. This has now come down to around Rs 5.5 lakh crore,” he said.
The global financial crisis was preceded by a wave of financial innovation related to securitisation and other innovations, especially innovative financial instruments. These allowed the financial system to grow beyond the capacity of the financial sector and the entities could manage, he said.
Given such past experience, prudence demands that introduction of innovation in the financial system should be done responsibly and in a calibrated manner taking into account the capacity of financial entities to manage the potential risk, Das said. It goes without saying that innovation that provides opportunities for high risk taking need not be managed by some corporate governance and risk management.
Das said that while the need for physical bank branches may go down, their “presence is needed’ to give comfort on issues like KYC. The RBI will soon come out with guidelines for digital banking, he said.
Das warns of strict action against harsh methods of recovery agents
RBI Governor Shaktikanta Das on Friday raised concerns over the growing instances of loan app scams and unruly behaviour of recovery agents. Speaking at the FE Modern BFSI Summit 2022, Das said the increasing use of technology and digital services has led to more incidents of digital frauds and customer dissatisfaction and it has attracted RBI’s serious attention.
“In the context of customer service, an area that is engaging our serious attention is the harsh recovery methods used by certain lenders without having adequate checks and controls over their recovery agents. We have received complaints of customers who have been contacted by recovery agents during odd hours even past midnight,” Das said.
“There are also complaints of recovery agents using foul language. Such actions of recovery agents are unacceptable and pose reputational risk for the financial entities. And this is something we find to a large extent in unregulated entities and to some extent in regulated entities of RBI,” he said. Stating that RBI will go out to address these issues very seriously as far as its regulated entities are concerned, he said that with regards to others, RBI will pass on the complaints to the law enforcement authorities to take action.
“We have taken serious note of such instances and will not hesitate from taking action against the errant regulated entities,” Das said, adding that the recommendations of the RBI working group on digital lending is at a very advanced stage of examination and the guidelines will be issued shortly.
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