In a veiled message to the Reserve Bank Governor’s hawkish policy stance, Chidambaram says RBI must understand its mandate in a broader sense and not focus solely on containing inflation
New Delhi : In a veiled message to the Reserve Bank of India (RBI), Finance Minister P Chidambaram has hinted that it should not focus solely on containing inflation but also look at the larger mandate of growth and creation of jobs.
Ahead of his meeting with PSU bank chiefs today, he also said banks would have to be heard before advising them on taking a balanced view about passing on the benefit of rate cuts to consumers.
“RBI must understand its mandate in a broader sense. Yes, RBI’s mandate is price stability, containing inflation and maintaining fiscal stability but that must be understood as part of a larger mandate of growth and creation of jobs,” he told PTI. He was replying to a question on what he expected from RBI in the next policy review on July 30.
On many occasions in the past, Chidambaram has not hidden his unhappiness over the hawkish stance adopted by RBI Governor D Subbarao over meagre interest rate cuts.
“I think all central bankers talk in very ambiguous terms but this I think there is nothing wrong in the statement,” Chidambaram said in reply to a question on the recent statement by Fed Chief Ben Bernanke which had led to spooking of markets across emerging economies.
Chidambaram will meet heads of public sector banks today to review financial performance of lenders and discuss ways to step up lending activity to boost sagging growth, besides passing on the rate cut benefit to borrowers.
To prop up growth, RBI has reduced the policy rates by 1.25% since January 2012. However, because of liquidity constraints, banks have lowered the lending rates by only 0.30% during the period. “Bankers have also got a case. Provisioning norms have been tightened, capital adequacy norms (they) have to meet Basel III norms in a period of four or five years. Banks also need to have higher profitability,” he said.
Vowing to get manufacturing and economy out of the downturn, Chidambaram said key infrastructure projects facing delays have been identified and will be cleared in the next few weeks. However, he admitted that there was no quick-fixes to economic problems and the government is working to stabilise the economy which may take time.
No cap on licences
With 26 public and private sector companies applying for bank licences, Chidambaram said that there was no ceiling on the number of entities which can be permitted to operate a bank.
“I don’t think there is a ceiling. I don’t think there is a number in mind. It all depends upon how many applicants are eligible applicants. The fact that somebody applies doesn’t mean he is an eligible applicant,” he told PTI. On whether India needs large banks or large number of banks, the Finance Minister said there is a case for both.
“A large number of banks will mean more competition and a quicker reaching into the country and faster financial inclusion.
“Large banks will mean that we are able to finance large projects using our own bank resources rather than depending upon foreign bank resources. So, both are required in this country,” he said. On Monday, RBI announced that 26 entities, including Tata Sons, LIC Housing Finance and the Department of Posts have applied for grant of bank licences.