RBI constantly trying to be innovative to aid recovery: Shaktikanta Das

 Hindustan Times

October 22, 2020

The Reserve Bank of India (RBI) is constantly trying to be innovative in announcing measures to boost liquidity and to aid the economic recovery while following counter-cyclical policies in sync with the fiscal policy, governor Shaktikanta Das said on Wednesday. Das said the economy was at the cusp of recovery and pointed out that governance in banks and non-bank lenders, especially the functioning of their boards, the chief executive officer and various board committees are important given the financial sector’s role in supporting the turnaround.

Das was speaking at the virtual release of the book ‘Portraits of power’ by Fifteenth Finance Commission (FFC) Chairman NK Singh. FFC’s recommendations to be submitted to President Ram Nath Kovind this month end will form the basis for the central government’ tax revenue sharing with states for the five years from FY22. The FFC is expected to pitch for the union and state governments to re-prioritise their spending to fix the creaky health infrastructure exposed by the coronavirus pandemic and to keep the pace of structural reforms to aid economic recovery.

Das said that the RBI has been proactively in touch with lenders in ensuring they are well capitalised to finance new projects and has not hesitated in using new instruments. “We have deployed tools and instruments which were not in RBI’s toolkit. We are trying to constantly innovate with new instruments. Today both fiscal and monetary policy are counter-cyclical,” Das said. Under Das, RBI adopted more flexibility in the rate setting process, moving away from the practice of calibrating policy rates in tranches of 25 basis points.

Earlier this month, the RBI took a host of regulatory steps to boost liquidity and credit flow to specific sectors. Finance minister Nirmala Sitharaman had said on Monday that the door was not closed on more stimulus measures. Earlier this month, the finance ministry allowed government staff to spend their holiday travel allowance for purchase of goods in a bid to boost consumption. The central government has also started the work for the next union budget and is examining the needs of different sectors as well as the pace of economic recovery. RBI has projected a 9.5% contraction for this fiscal, recovering from the sharp 24% contraction seen in the June quarter.

“Today we are at the doorstep of revival process after the pandemic. It is very important that financial entities are adequately capitalised. Many have raised capital and others are planning and will do in coming months,” Das said. The Central Bank governor also said that ever since the global financial crisis of 2008-09, governance in banks and non-bank lenders have become important in India.

Banks which have robust governance practices, internal controls and risk assessment and do not resort to “smart accounting” are the ones which are never over leveraged and not only survive but grow in every crisis, he said. Das explained that both the fiscal and monetary policies are in sync. “Now both are counter-cyclical,” said Das.

https://www.hindustantimes.com/business-news/rbi-constantly-trying-to-be-innovative-to-aid-recovery-shaktikanta-das/story-MtjgsszamE4ueyQpZbRMIP.html

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