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No ‘Lehman moment’ possible in India; firewalls in place: Rajan

FPJ Bureau | Updated on: Friday, May 31, 2019, 03:26 PM IST

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London : Confident of clearing up the bad-loan mess, RBI Governor Raghuram Rajan said there is “absolutely no chance of a Lehman moment” in India and a three-cornered firewall was being created to safeguard the economy from external shocks.

He also rejected calls for any immediate privatisation of public sector banks and said the urgent need was to clean up their balance sheets and no private investor would anyway come without a cleaner balance sheet. Rajan, who has often been criticised for being too economical with rate cuts, indicated that rate cuts were not the only instrument to boost growth.

“I think the real way we are trying to firewall the economy is, on the first hand, with good policies, including as I said, the moves on reforms that have been enacted recently. The second is by trying to increase the maturity of our debt. We have substantially increased the maturity of debt, external debt that we owe. The third is we built-up reserves,” he told CNBC news channel.

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Asked about bad loan problem in India being bigger than the size of New Zealand’s USD 170 billion economy and whether there was risk of a banking crisis, Rajan said, “I do not think it’s that big. Second, many of bad assets are in public sector banks and the government fully guarantees them.

“So, there is absolutely no chance they will fail. There is also absolutely no chance there will be a Lehman moment.”

It was the collapse of Lehman Brothers, once a giant banking institution, that began a severe financial crisis in the US in 2008.

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Admitting that the banking sector is under stress in India, Rajan said, “Ours is not a retail problem. It is a wholesale problem. There are big projects…and it is not because of connected lending or corruption. It was because the world changed.”

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…says inflation still high; dashes rate cut hopes

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London:  Inflation remains “fairly sticky” and above the comfort level of the RBI, Governor Raghuram Rajan said — comments that may dash hopes of any immediate lowering of interest rates by the central bank.

At the same time, Rajan also exuded confidence about a robust pace of economic growth and said there was no need to borrow in dollar from overseas markets as there were no problems on borrowing in domestic currency.               He also promised greater access to the foreign investors to the rupee bond markets in India.

“We have been increasing that (access) every six months and as we feel more confident about the pace of the economy and the prospects for the global economy and no surprises, we will look at that,” he added.

Rajan has often linked his monetary policy actions to the retail inflation, which soared past 5 per cent level in April, as per the latest government data.

The industry has been demanding further rate cuts by RBI to boost growth. The central bank is scheduled to hold its next monetary policy review meeting on June 7.         Speaking here at the Chicago Booth Business School today, Rajan said, “Broadly, core inflation has been fairly sticky, a bit higher than we would want. It has not moved up and down. We will continue on the task of anchoring expectations.”             He, however, exuded confidence in the recovery of Indian economy and pinned his hopes on a good monsoon.  “We are at the beginning or maybe in the midst of a slow recovery. The signs of faster growth are there… A good monsoon would accelerate the process of recovery.”

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Published on: Saturday, May 14, 2016, 12:02 AM IST