Good morning everyone, or good afternoon rather. I think it's already 12:00.
Okay, yeah, you can start. Yes sir, we clear it. Yeah, okay, thank you, thank you very much. It's all about managing expectations.
Okay, thank you sir. Hello and good afternoon. Welcome to this post-monetary policy press conference. Friends, we have with us Governor, Reserve Bank of India, Shri Shaktikanta Das; Deputy Governor Dr. M.D. Patra; Shri M. Rajeshwar Rao; Shri T. Rabi Shankar; and Shri Swaminathan J. We also have with us Dr. O.P. Mall, Executive Director, and Executive Director Dr. Rajiv Ranjan, and other colleagues from the Reserve Bank. Sir, to begin with, I would request you to make your opening remarks. After that, we'll have the Q&A. Please.
I would like to make five observations. First, number one: the MPC remains committed to restoring the balance between inflation and growth, which has got unsettled recently. Two: The Reserve Bank will use its various policy instruments to create the conditions for restoring the inflation-growth balance. Three: The credibility of the flexible inflation targeting framework needs to be preserved. Four: Inflation has to be brought down in the interest of sustainable growth. Five: Prudence, practicality, and timing — I repeat, prudence, practicality, and timing — will continue to be the guiding principles for the Reserve Bank's future actions. It is all about dissection of the inflation-growth conditions and acting accordingly. Timing of actions is the key. Thank you.
Thank you sir. Before we begin, I'll request the media friends present here to wait for their turn. You may see my colleagues on the aisle; they have the mics with them, so they'll give you the mics. Please speak into the mic, because otherwise you will not be audible to outsiders. And in the interest of time, as I always say, please restrict to one question per person. If time permits, we can consider the other one. Sir, there are 24 participants from media today, and with your kind permission, I'll start calling out their names. I'll start with Mr. Yogesh from Dainik.
Good afternoon sir, thank you for the opportunity. Sir, despite the reduction in the GDP forecast, the rates are basically maintained, the repo rate is maintained, but the CRR is reduced by 50 basis points. What is the thinking behind that? Thank you.
I think I have explained it elaborately in the statement which I presented earlier today morning. As regards growth, the second half of this year looks better than the first half. The first quarter of this year, there were issues that coincided with the election season, a countrywide election, which probably affected government expenditure in particular. For the second quarter, the reasons for the slowdown we have explained: continuing monsoon rainfall also affected activities, particularly in mining, electricity demand, and manufacturing was also slow. So I have explained why we expect the second half to be better this year than the first half. On inflation, I have also given a roadmap. We need more credible evidence that things are happening the way we are expecting, that the direction of developments, the direction of evolving conditions, the outlook is playing out in line with our expectations. And as I have just now mentioned, it's a question of timing. You have to appropriately time your actions. When there is a time for a particular action, be it a rate cut, be it a liquidity action, be it whatever action, they have to be well-timed. They have to be timed in a manner keeping the outlook in mind, and action has to be taken when it is really going to be most effective and impactful. Thank you.
Thank you sir. Next we'll have Mr. Manojit Saha from Business Standard.
Thank you sir. Let me ask something which is there in everybody's mind. Have you heard anything from the government so far whether you are continuing this term, at least informally, before the policy meeting started? I will have one more question today.
Yes, is that your only question?
No, I will have one more.
No, let's stick to monetary policy. Please ask your question on monetary policy, otherwise you will miss your chance on asking a question on the monetary policy. So you choose which one you want to ask.
Okay, since it's your choice...
Okay, I'm willing to answer the first question also, but it's your choice.
Okay, please answer the first question then.
Okay, I'm not giving you any headline, and I think it's better we stick to monetary policy. Thank you.
Thank you sir. You can ask your main question please.
The question I wanted to ask also is, how did you get the growth estimate so wrong for Q2? You know, it projected 7% even in October, it came out at 5.4%. So what exactly went wrong in the projection?
I would request Deputy Governor Michael Patra to take that question.
There is a lot of commentary on that already in the press. If you look at the demand side, the main problem is investment. On the supply side, the 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. So when sales growth is down, companies do not want to invest in new assets because they see demand as 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.
Thank you sir. I'll now request Mr. Anurag Mishra from ET.
Good afternoon Governor. I want to understand the inflation scenario which you have explained. You are also maintaining that in Q4 the situation might be slightly better, while in Q2 and Q3 the upside risk remains. Last time you had mentioned about the horse bringing back to stable. What is the scenario now? Is it the scenario that a controlled trot may continue, or you see that you need tighter reins to control the horse?
The horse has made a very valiant effort to bolt. Our effort is to keep it in a tight leash. Thank you sir.
May I now ask Mr. Vishnu from NDTV Profit?
Good afternoon Governor. The first question is, you mentioned that if growth continues to linger lower, then you may need policy support. You are admitting that Q2 was looking weaker, even though the rest of the financial year may look better. Your cut on the growth projections is sharper than your hike on inflation projections. I still want to understand why then the status quo, because it's clear that you have a growth bias in your commentary.
Please, no. Whether I have a growth bias or inflation bias, I think it's for you to interpret. But if you recall, before I presented my statement, I made some extempore opening remarks where I have exactly explained our approach: why monetary policy is important, what exactly is the mandate given to the Reserve Bank. In the Reserve Bank of India Act, the provision is very clear, and our effort is always to follow the legal provision. The mandate given to us, both with regard to inflation and growth, our effort is to follow it in letter and spirit. There is no room for knee-jerk reaction. We need more credible evidence, we need more evidence with regard to how the outlook is likely to be, and based on that assessment, the effort is always to take action in time. Whatever action — I'm not talking about a rate cut or again — but whatever action we take, it has to be well-timed and it depends on the outlook. No room for knee-jerk reaction, because if you take a certain knee-jerk reaction, you may have to reverse it. So you should not regret. But let me tell you very clearly that our effort has always been to remain in line with the curve, never fall behind the curve, and I think we are maintaining that trend. Thank you.
Supply... me inflation targeting framework or food inflation... explain... headline food inflation... Reserve Bank... offline Reserve Bank of India... thank you.
Next will be Miss L from CNBC.
Thank you sir. You have a couple of times said that the growth-inflation balance has gotten skewed and you have to restore the balance. Does it mean you were skewed in favor of growth and you're going back to inflation, or was the balance skewed in favor of inflation and now it will become pro-growth? How do we understand this skew question? And just a word on CRR: is that only going to take care of the liquidity that has already gone away from the system? Q4 we are still staring at cash withdrawals possible, dollar inflows, RBI dollar sales. So do you still have OMOs or any such thing on the table?
You see, whatever action we have on the table, I will not be able to spell out. It will depend on how the situation evolves. We expect in the next few months tight liquidity for reasons which I have explained. One is that we expect tax-related outflows from the system, both direct tax in the middle of December and thereafter the GST. Together with that, there is a possibility, likelihood, of increase in currency in circulation because the busy credit season, agricultural activity has now picked up, and that requires cash. That will overlap into the harvest season also, which requires cash. So the currency in circulation is also likely to go up. And then there have been significant amounts of capital outflows in the months of October and November. That is, outflow of forex has happened because of FPIs exiting. So therefore, with regard to your point about dollar inflows, that is something which is difficult to quantify at the moment. Our assessment is that liquidity conditions will remain tight. And let us also bear in mind the fact that the CRR increase was done sometime, I think if I remember correctly, in April 2022. In that policy we did it. It was a temporary measure, it has served its purpose, it was time to normalize it. And with regard to growth-inflation balance, I didn't say skewed, I just said unsettled. I think in the statement I have used a different word. So basically what we mean is that last time we had said that the growth-inflation balance is well-poised. Well-poised means the growth looked good for that quarter as well as for the whole year, and the inflation outlook also we were aware that September and October inflation prints will be higher. But as you know, September and October, because of weather factors and other factors, food inflation went up very steeply. September numbers were broadly a little higher than what we had estimated. October also we had expected it to be high, but the actual number came a little higher than what we had estimated. So therefore, inflation was more than what we had expected, a little more, and growth also has moderated. The numbers we have given. So the well-poised character of the dynamics between growth and inflation has got somewhat unsettled. Our effort is now to restore that balance, which basically means that we want inflation to be brought down closer to the target, we want growth also to pick up. And I think our estimates, our assessment also shows that growth is picking up. So we have to be very watchful, we have to maintain that balance between growth and inflation. That's it. Thank you.
Thank you sir. Next we'll have Mr. Mayur Shetty from The Times of India.
Thank you sir. My original question was on this GDP coming as a surprise, but Manojit has already asked that. My other question is on, during your term there have been a couple of times and it has coordinated with the government at that time, and that has worked very well, the coordination. So now that uncertainty is constant, do you think there is scope for continuing this coordination, given that the inflation mandate is enshrined and there's an expectation from the government that there should be a focus on growth? And also you all do not give any forward guidance on your actions. So do you think any forward guidance on your actions? So do you think there's more scope for coordination?
No, I think coordination has been there, coordination is there, and coordination will continue to be there. So that is a constant process, and it continues. Whenever we have any thoughts or any concerns, we always share it with the government. That engagement and coordination continues. In fact, in one of my recent speeches at an international seminar which we organized in Mumbai with the participation of central bank governors from the South, I had highlighted the importance of fiscal-monetary coordination. So that is very important. It has proved its mettle, it has proved its strength during the stressful times of COVID and thereafter when the Ukraine war started and inflation suddenly spiked. So coordination continues. Thank you sir.
Next we'll have Miss Swati from Reuters.
Thank you sir. So we've seen growth numbers come down sharply. The 5.4% was a shocker. You've also revised down your growth estimates for the next two quarters, whereas inflation is high. Is it fair to say that India is now in a stagflationary phase? And also, looking at these growth numbers, is the trend growth for India coming down from the 7.5-8% levels closer to 6.5? Is the trend growth for India much lower than what we have been talking about?
I will pass on this question to Deputy Governor Michael Patra. But I would also suggest that there have been so many other announcements, some very important announcements in the part B of my additional measures. So I think maybe some questions on that would be useful for the wider audience which is watching this press conference.
So I explained why there is a slowdown in GDP growth in the second quarter due to a special set of factors. Now, it's not appropriate to make a judgment on the trend rate on one data point. So what was expressed as 8% was not a trend, it was just the average from 2021 to 2024. And all over the world, for every country, the projections that are being made for 2025 and 2026 are implicitly correcting cyclically for the rebound from the pandemic for all countries in the world. So even when we made our initial projections, they were not at 8%, they were 7.2%. And also in the Monetary Policy Report, we gave a projection for 2025 which was the same cyclical correction. After this correction is over, it will revert back to a trend, and we are yet to see the data points of that trend. What the Governor has been saying is that the average between 2021 to 2024 was 8%. Now, if you see the second half of the year's projections, there is a reversion back towards an upper rate of growth: 6.9, 7.3, and that continues into 2026. So we are hopeful that we will reach that level again.
Thank you sir. Next we'll have Miss Hamsini K from Moneycontrol.
Hi. What exactly was the rationale for reducing CRR? The question here is in the context of, in absolute terms, we don't have a liquidity deficit as such. And if I were to look at it from a banking perspective, I would think that a CRR cut would allow banks to ensure that they don't have to compromise much on margin versus a repo rate cut at this point in time, given that profitability of banks has also sort of been under the weather for the last three-four quarters. Was that also a thought process that you had in your mind when you initiated the CRR cut? And as such, bank lending is also anemic. So do you believe that this will free up some more money for them to lend, increase the lending?
You see, the CRR cut, I have just explained a little while ago. We have normalized it, and it was time to normalize it. It was a temporary measure, so we have normalized it. What the banks do with the CRR money is entirely their call. Whether they use it for giving credit or whatever purpose they want to use it, it is their call. And with regard to liquidity, it is surplus today. It is surplus today. Perhaps on Monday next week, for two or three days, it is likely to be surplus. But we clearly see that we are going into a phase where liquidity is going to be very tight in the latter part of this month, December, and continuing into January and perhaps into February. So we thought it was time to sort of normalize the CRR levels. And the other questions which you mentioned about banks, these things, we don't make monetary policy or liquidity decisions keeping in mind the balance sheet requirements of banks. Our policies are governed by the growth-inflation dynamics. Our policies are governed from the point of view of maintaining overall stability of the economy. Whatever issues are there in the banks, etc., that is dealt with through the supervisory arm of the Reserve Bank. Thank you sir.
Next I'll ask Mr. Ashish.
Thank you sir. Sir, what prompted the FCNR(B) measure? Sir, like last time we saw upwards of $30 billion coming in after some relaxations. This time, is there some bit of idea of how much incremental money would flow in? What are your expectations?
To take that, I think these measures are intended to enhance the capital flows, and that has been clearly articulated in the circular. There is a scope for foreign non-resident Indians or eligible Indians who are eligible to invest into the FCNR(B) to increase their deposit base in India, and that is purely what has been contemplated at this point in time. And it's a temporary measure which is there till 31st March. Thank you sir.
Ins... govern... bus... circular. What is the percentage of holding? What type of business? Banks... future actions will be taken or regulatory actions will be taken on that basis. So we are waiting for feedback on the Forms of Business circular, and that will guide us in the way we look at investments into subsidiaries or associate companies of banks. Instructions, there are clear instructions already existing. Podcast, new instrument. It's become very popular now, and I think viewership, especially among youngsters. RBI, we want to remain in times, requirement of the times. You know, in this matter also, we should be ahead of the curve. So it's basically a communication tool to communicate with a wider cross-section of the people. Sometimes it may be necessary not to give a detailed interview, sometimes it may be necessary not to do a press conference. You want to talk on a particular issue, some new measure has been announced that needs to be explained to the people. Podcast will help in those kind of things.
Dad sir. Next we'll have Mr. Anoop from Bloomberg.
Sir, you said that the growth slowdown is probably over, next half's growth will be better. But at the same time, you are saying that inflation pressure will be there, probably more than what we have witnessed. Are you indicating that a February rate cut is also very risky?
I have not indicated anything about the future cycle of interest rates. Thank you sir.
Next I'll request Mr. Sachin Kumar from Financial Express.
So the growth in unsecured loans has come down significantly in the past few months. But now there is one pocket of gold loan where the growth is very strong. So do you think it is a cause of concern, and it may also warrant the same kind of measures to curb that growth?
I would request Deputy Governor Swaminathan to take that question.
See, the growth in unsecured loans at that point in time when we took some additional macroprudential measures last year was essentially to curb the exuberance that we saw in that particular segment, so that any possible stress or risk buildup is avoided. That was the intention with which we took that step. Otherwise, in terms of what should be the product mix, as to how the banks should drive their business, is purely a business call. And gold being a collateralized loan, the banks and NBFCs have shown preference to grow. What is more important for us is to ensure that there is fairness in their conduct towards the customers, and that the appropriate norms relating to LTV, income to repayment obligations, etc., are being adhered to in a fair and transparent manner. So our instructions are more aimed towards ensuring orderly conduct of this business. Growth or product mix is something which is essentially left to the bank's wisdom to pursue.
Does it qualify as exuberance according to you?
There are no golden numbers to determine which is less or which is more. And also, you have to see the percentages in reference to the base. When we talk about almost 175 lakh crore of bank credit, what is the proportion that the gold loan of 10 lakh plus crore constitutes? So percentages at times can look different, but what is more important is whether the portfolio is being built in a responsible manner, in a prudent manner. So that is what we will keep watching. But in any case, we will be remain watchful of the incoming data, and if some prudence demands that we should initiate some action, we will take it at the appropriate time. At this point in time, the guidance in terms of the conduct would suffice as our view. Thank you sir.
Next may I request Mr. P from Hindu Business Line?
Good afternoon Governor, DGs. Thanks sir. Governor sir, first question is with regard to what Swati asked about gold loans. My question is on MFI. A lot of MFI companies are seeing higher delinquencies, creating higher provisions. Is the RBI concerned about this? Somebody mentioned only six months also they don't have any experience but they still get loans. So in the MFI sector, are we seeing any incipient stress building, and what are your views on that? And separately, what gives you the confidence that the current fiscal 6.8% GDP growth can be achieved, the revised projection that you have done? Because November we saw a 6-7% fall in UPI transactions. I know it's not the only indicator, but month-on-month it's fallen 7%, and it is a month of festivities.
No, you see, on the growth number, I think I have explained it elaborately in the statement and now also I have explained. What gives us the confidence or no confidence, I think it's for you to assess whether our numbers for the third quarter are realistic. We have made our assessment, and we look at multiple factors. It's not just UPI, it's just one of the factors. But on the other part of your question on MFIs, I would request Deputy Governor Swaminathan to reply to that question.
Yeah, these are some of the segments in which, as we spoke last during the course of MPC as well, there are certain segments we saw increased slippages in the Q2 numbers that were emerging. And as we mentioned earlier, it was not very surprising to us because these were the segments which saw an outlier growth a year before, and we had taken some proactive measures on that. And we had also, if you would recall, in the August monetary policy statement, the Governor has said that in these segments where enhanced slippage is being witnessed, we have requested the banks and NBFCs to strengthen their underwriting standards and to step up on their collection efforts to ensure that the stress does not translate into NPAs. So on the same theme, we continue to engage with the entities. Wherever we see any outlier behavior at the system level, it is still not a big concern. About 20-30 bps uptick in stress is something which we are confident that the entities will be able to handle. And in certain entities where these particular numbers are a little outlier, we deal with them on a bilateral basis, examining the steps that they are taking to ensure that the stress is not widespread. And third, of course, through the SRO, there are enough levers that are available to us to ensure that the self-regulatory organization in this particular space in the MFI space is taking adequate steps to sensitize their members to adhere to the prudential guidelines of the Reserve Bank and ensure that the household income assessment and the repayment obligation towards the net monthly income, etc., are strictly adhered to. And as the Governor said earlier, to avoid the push effect, just respond to the demand rather than give loans to achieve someone's target. So I think these are three or four key messages that we have managed to deliver in the last two or three months. I think that should be good enough to ensure that the balance is restored in this particular segment.
Yeah, please. On the UPI numbers, I think we shouldn't read too much. There was an oversized increase last month because of the way the festivals fell this year, so that got corrected for this month. So I expect that the trend will continue going forward. Thank you sir.
Next I'll request Mr. Lendu Mishra from The Hindu.
Good afternoon Governor. US President-elect Donald Trump has reportedly threatened to create trade barriers and break nations like India. Will it impact our exports, or is it a matter of concern? Thank you.
No, it is... we have to first thing is, let's not prematurely let the policy come. And so far as the BRICS you're referring to, in the context of the BRICS currency and all that, you see... sorry, yeah, yeah. So now, the BRICS currency was an idea which was raised by one of the members of the BRICS countries, and it was discussed. No decision has been taken in the matter. The geographical spread of the countries also is a factor which has to be kept in mind. Unlike the Eurozone, which has a single currency and geographical contiguity, BRICS countries are spread all over. That also has to be kept in mind. And with regard to the dollar, dollarization, etc., there is absolutely... so far as India is concerned, there is no step which we have taken which specifically wants to de-dollarize. All that we have done is that we have permitted opening of Vostro accounts, and we have entered into agreements with a couple of true countries by now to do local currency denominated trade. That is basically to de-risk our Indian trade dependence on one currency, which can be problematic at times because of appreciation or depreciation. So as a part of de-risking our trade, that is a step which has been taken. Nothing... de-dollarization is not our objective, certainly not our objective. It's not on the table at all. I think it's more of a narrative which is being said in some sections of the media. Our effort is basically to de-risk our trade. Nobody is talking about or thinking about de-dollarization. Thank you sir.
I'll request Miss Seema from The Economic Times.
Thank you sir. Sir, could you share your thinking behind the introduction of the new repo rate that you have spoken in the policy? And sir, could you give some idea on the timelines for the draft guidelines, because almost four of them are already being talked about: the project finance, LCR, and climate finance. Could you give some idea when they would be out?
Okay, so I think you can... so as of now, we have two benchmarks which are set out by the FBIL. One is the MIOR, which concerns uncollateralized transactions, and we have the MIBOR, which is based on the market repo. But the TREPS, which is 60% of the market, is not in that index. So this index that we will have now will capture all secured transactions. That's the limit. And on the other part, I would request Deputy Governor Rajeshwar to give the reply.
Guidelines are fairly major game changers as far as the banking system is concerned. So we have got significant feedback on all these guidelines. Those need to be carefully evaluated, and we will calibrate the way these guidelines are rolled out. So I think we are in the process, we are close to finalizing some of the approaches.
I will not give a definite timeline. See, we have followed a very consultative approach. These are all... they will bring about significant changes in the banking system. So we are proceeding on it. These measures are necessary, but we have to proceed in a very careful and calibrated manner, in consultation and taking into account the suggestions and other issues which have been raised by the banks and several other stakeholders. So we want to move very carefully, very cautiously, so that when implemented, the implementation is as non-disruptive as possible. Thank you sir.
Sir, with your permission, two more questions. So I'll request Mr. Ben from New Indian Express.
Hi sir. Hope to see you announcing the next policy, sir. And congratulations for the six years of RBI. We will miss you at the next policy. My question is what L asked about, it's a follow-up on that. The rupee has been under pressure, and if the Trump tariff war happens, say 10% on Indian exports, what could be the impact on the rupee?
Going forward, if the tariff happens, I think I'll take that question. The tariff, hypothetically if it happens, will not be an isolated event. There will be other events around it. For instance, they say that perhaps China may react by devaluing the currency, or there might be retaliatory tariffs. So at this point, it is very difficult to say what will be a unilateral move and unilateral effect. Let us wait for the equilibrium, general equilibrium effects. Thank you sir.
And lastly, I'll request Mr. Sadat Upasni.
Thank you sir. Good afternoon Governor. A couple of months ago, there was a paper co-authored by you and Dr. Patra saying that the rate hikes since May 2022 have negatively contributed to growth by around 160 basis points. So has too much growth been sacrificed to reduce inflation? And are those rate hikes and the retention of the repo rate at 6.5% expected to continue impacting growth going forward? And second, on FCNR(B), is the FCNR(B) limit increased to reduce the pressure on RBI's forex interventions, because the monetary policy and forex management policy has been at sort of odds? The interventions have drained out a lot of rupee liquidity. So is that also been a consideration? Thank you.
I think since the paper was authored by Dr. Michael Patra, he should reply.
So I'm happy that you've read the paper, but I do hope you read it carefully. What it says is that the cumulative rate increase of 250 basis points reduced inflation through aggregate demand by 160 basis points. But inflation fell from 7.8% in April to 3.8% recently in August. So of the 320 basis points, only 160 is due to monetary policy. Now, in the same paper, you will see that there are charts which show the impact of an interest rate change on output and inflation. The impact on output starts after the rate increase and reaches its peak in the third quarter after the rate increase, it plateaus in the fourth quarter, and after that it fades away. So if you take the cycle of rate hikes, the cumulative peak was in July-September 2022 in terms of quarters. So take four quarters from there for the effect on output: July-September 2023. So after that, output starts to rise back. The effect on inflation lingers for 10 quarters. So by now, output has started to go back, and it has actually crossed what we call its potential level. So to ascribe the growth slowdown of the second quarter to that, I think is stretching the case too far, sir.
One last question. Miss Gopa, you would like to ask? Right, yeah, you can please speak.
I mean, just adding to his question, is that a concern? I mean, was that a consideration, the forex reserves, given that we had seen the kind of outflows last two months and more is expected? The market is expecting a similar quantum of outflows the next few months. Is the FCNR(B) hike a consideration behind coming out with that, and also will there be more measures to sort of protect the currency? And my second question, sir, on usurious rates. RBI has raised a lot of concerns around usurious rates. Now, the Reserve Bank has followed a principle-based regulation and has removed any sort of caps on lending rates. But given the kind of concerns that are rising in the industry, MFIs, unsecured loans, is there a need to define a boundary or a threshold in terms of lending rates?
You will take that thing, or you will take... but before that, is FCNR(B)? Let me say first thing. I want to say that our forex reserves are quite robust even now. And the depletion in the reserves which has happened in the last few months, part of it and a good part of it is because of valuation losses. Still, our reserves, the latest print I think we gave out 656 or something like that, I don't remember the number exactly, but reserves are still quite adequate. We are confident of dealing with any spillovers. Now, you mentioned that is the Reserve Bank concerned about outflows and all that? You see, somebody said that key inflows are expected. So how the forex market will behave going forward, we cannot really sort of guess, we cannot really assess. There are so many uncertainties: a new administration in the US that will take over, the response of other countries. So it's a very dynamically evolving situation. So as per requirement, we will take action. So at the moment, we have no concern at all. It is a facilitation which we have provided to attract more inflows and an opportunity for NRIs to invest. And I actually lost a bit of your question, two questions so long. Is there anything else you asked in that? FCNR(B), we're getting more measures? No, about more measures, you will have to wait. I can't spell out now. More measures, as and when they are required, we will take. But on the FX front, let me say very clearly and emphatically that our forex reserves are strong. And I have devoted two paragraphs in my statement to explain the rationale for RBI's forex management. The focus is not just to deal with spillovers; it is an essential part of the Reserve Bank's policy to build stability, macroeconomic stability, and financial stability of the domestic system. Thank you sir.
Sir, so this is the end of the question. Would you... oh, sorry, there's a... yes.
Maybe, uh, see, as you would recall, the Reserve Bank, after extensive consultation, has deregulated the administered interest rates, and this freedom has been placed with the boards of the banks and NBFCs. And we have also said that the boards are expected to use this freedom placed in them in a prudent and sensible manner to ensure that their pricing practices are not considered usurious, whether it is pricing or fees. And we have also said in the same regulation that this will be subjected to supervisory assessment. So based on such assessment over the last couple of years, wherever we have found such practices where we found that the customer interest was in danger and the decisions were more driven by profit motives rather than securing customer interest, we have called out such entities. As I mentioned, we have had extensive discussion with multiple entities. Many entities have taken measures themselves to correct the situation, and a few entities which were considered outlier, we have singled them out for supervisory action, which we will anyway review subject to their rectifying their position. And the third part of your question is, are we having a rethink? I don't think at this point in time we still expect the industry to correct itself and use the freedom placed with them in a sensible manner, so that their business grows in a responsible manner, ensuring fairness in their conduct and fairness to the customers. That is what we will continue to push at this point in time. Thank you.
Thank you sir. Sir, would you like to... so I mean, before we conclude, there was one announcement which I made about this Mule Hunter. I thought there will be a question on that, but since it's not there, just to disseminate the information to the wider audience, people who are viewing this broadcast, I would request Deputy Governor Rabi Shankar to very briefly explain that.
Thank you Governor. Thank you also for intervening so that I got a direct question after a long time. Now, the Mule Hunter is basically an infrastructure-level setup we are creating which will use the databases from all banks, all other payment system operators, and its AI engine will be trained based on this wide set of data to be able to identify frauds, etc., much more effectively in the financial system. If you look at frauds, the number of frauds is increasing, the amount involved in frauds is increasing, although the number of frauds per transaction is coming down over the years, but the number is increasing fast enough for us to be concerned about it. I just wanted to clarify one point with respect to Mule Hunter, because there was some talk about it that every entity, any payment system operator, any bank, any credit card network, every entity is free to use their own fraud detection systems. They'll probably be used over and above this, and every individual is free to innovate based on their own expertise, their own AI engines, and so on. The Reserve Bank's idea of introducing this Mule Hunter is to create an infrastructure-level facility which others can use. Many participants, many small banks, etc., cannot devote enough resources to develop such systems, can actually use this. Even for the well-developed ones, this is a base which everyone can use. Thank you.
Thank you. I think before my colleague Punit concludes, there is just one information I want to provide. This is about the RBI 90 Quiz which we launched this year. As you would be aware, we had launched the RBI 90 Quiz in August this year. This was a nationwide quiz for undergraduate students as part of the commemoration of the Reserve Bank's 90th year. I'm happy to say that there was an overwhelming response to the quiz. We are holding the national finals today at 2:30 PM in Mumbai. It will be live-streamed on the Reserve Bank's YouTube channel. I encourage everyone, especially all the viewers, to join us and watch the exciting contest. Thank you.
Thank you so very much sir. With this, we'll conclude the press conference, and I'll thank the top management of the Reserve Bank for answering all the questions. I'll request all the media friends to exit from the gate on my left, and I'll thank you once again and have a pleasant day.
Interpret but if you recall, before I presented my statement I made some extemporaneous opening remarks where I have exactly explained our approach: why monetary policy is important, what exactly is the mandate given to the Reserve Bank in the Reserve Bank of India Act. The provision is very clear, and our effort is always to follow the legal provision, the mandate given to us both with regard to inflation and growth. Our effort is to follow it in letter and spirit. There is no room for kneejerk reaction in the life of a central bank. We need more credible evidence, we need more evidence with regard to how the outlook is likely to be. Based on that assessment, the authority is always to take action in time. Whatever action – I'm not talking about rate cut or anything – but whatever action we take, it has to be well timed and it depends on the outlook. No room for kneejerk reaction because if you take a certain kneejerk reaction, you may have to reverse it, so you should not regret. But let me tell you very clearly that our effort has always been to remain in line with the curve, never fall behind the curve, and I think we are maintaining that trend. Thank you.
Z Business... food... inflation... discuss supply... meeting framework or food inflation... explain headline or food inflation... Reserve Bank of line... invest bank of India.
Thank you, sir. Next will be Miss L from CNBC.
Thank you, sir. You have said a couple of times that the growth-inflation balance has gotten skewed and you have to restore the balance. Does it mean you were skewed in favor of growth and you're going back to inflation, or was the balance skewed in favor of inflation and now it will become pro-growth? How do we understand this skew question? And just a word on CRR – is that only going to take care of the liquidity that has already gone away from the system? Q4 we are still staring at cash withdrawals, possible dollar inflows, RBI dollar sales. So do you still have OMOs or any such thing on the table?
You see, whatever action we have on the table, I will not be able to spell out. It will depend on how the situation evolves. We expect in the next few months tight liquidity for reasons which I have explained. One is that we expect tax-related outflows from the system – both direct tax in the middle of December and thereafter the GST. Together with that, there is a likelihood of increase in currency in circulation because the busy credit season, agricultural activity has now picked up, and that requires cash. That will merge into the harvest season also, which requires cash, so currency in circulation is also likely to go up. Then there have been a significant amount of capital outflows in the months of October and November – outflow of forex has happened because of FPIs exiting. Therefore, with regard to your point about dollar inflows, that is something which is difficult to quantify at the moment. Our assessment is that liquidity conditions will remain tight. Let us also factor in and bear in mind the fact that the CRR increase was done sometime in April 2022, I think in that policy we did it. It was a temporary measure, it has served its purpose, it was time to normalize it. And with regard to growth-inflation balance, I didn't say 'skewed', I just said 'unsettled'. I think in the statement I have used a different word. So basically what we mean is that last time we had said that growth-inflation balance is well-poised. Well-poised means the growth looked good for that quarter as well as for the whole year. Inflation outlook also we were aware that September and October inflation prints will be higher, but September and October because of weather factor and other factors, food inflation went up very steeply. September numbers were broadly a little higher than what we had estimated. October also we had expected it to be high, but the actual number came a little higher than what we had estimated. So therefore inflation was more than what we had expected, little more, and growth also has moderated. The numbers – we have given the numbers – so the well-poised character of the dynamics between growth and inflation has gotten somewhat unsettled. Our effort is now to restore that balance, which basically means that we want inflation to be brought down closer to the target, we want growth also to pick up. And I think our estimates, our assessment also shows that growth is picking up. So we have to be very watchful, we have to maintain that balance between growth and inflation. That's it. Thank you.
Thank you, sir. Next we'll have Mr. Mayur Shetty from The Times of India.
Thank you, sir. My original question was on this GDP coming as a surprise, but Manojit has already asked that. My other question is on: during your term, there have been a couple of crises and RBI has coordinated with the government at that time and that has worked very well, the coordination. So now that uncertainty is constant, do you think there is scope for continuing this coordination, given that the inflation mandate is enshrined and there's an expectation from the government that there should be a focus on growth, and also you all do not give any forward guidance on your actions? So do you think there is scope for coordination?
No, I think coordination has been there, coordination is there, and coordination will continue to be there. So that is a constant process and it continues. Whenever we have any thoughts or any concerns, we always share it with the government. That engagement and coordination continues. In fact, in one of my recent speeches in an international seminar which we organized in Mumbai with the participation of Central Bank governors from the South, I had highlighted the importance of fiscal-monetary coordination. So that is very important. It has proved its mettle, it has proved its strength during the stressful times of COVID and thereafter when the Ukraine war started and inflation suddenly spiked. So coordination continues. Thank you.
Thank you, sir. Next we'll have Miss Swati from Reuters.
Thank you, sir. So we've seen growth numbers come down sharply – the 5.4% was a shocker. You also revised down your growth estimates for the next two quarters, whereas inflation is high. Is it fair to say that India is now in a stagflationary phase? And also, looking at these growth numbers, is the trend growth for India coming down from the 7.5-8% levels closer to 6.5? Is the trend growth for India much lower than what we have been talking about?
I will pass on this question to Deputy Governor Michael Patra. But I would also suggest that there have been so many other announcements, some very important announcements in the Part B of my statement as part of our additional measures. So I think maybe some questions on that would be useful for the wider audience which is watching this press conference.
So I explained why there is a slowdown in GDP growth in the second quarter due to a special set of factors. Now it's not appropriate to make a judgment on the trend rate on one data point. So what was expressed as 8% was not a trend, it was just the average from 2021 to 2024. And all over the world, for every country, the projections that are being made for 2025 and 2026 are implicitly correcting cyclically for the rebound from the pandemic for all countries in the world. So even when we made our initial projections, they were not at 8%, they were 7.2%. And also in the Monetary Policy Report, we gave a projection for two years which was the same cyclical correction. After this correction is over, it will revert back to a trend, and we are yet to see the data points of that trend. What Governor has been saying is that the average between 2021 to 2024 was 8%. Now if you see the second half of the year's projections, there is a reversion back towards an upper rate of growth – 6.9%, 7.3% – and that continues into 2026. So we are hopeful that we will reach that level again.
Thank you, sir. Next we have Miss Hamsini K from Moneycontrol.
Hi. What exactly was the rationale for reducing CRR? The question here is in the context that in absolute terms we don't have a liquidity deficit as such, and if I were to look at it from a banking perspective, I would think that a CRR cut would allow banks to ensure that they don't have to compromise much on margin versus a repo rate cut at this point in time, given that profitability of banks has also been under the weather for the last three-four quarters. Was that also a thought process that you had in your mind when you initiated the CRR cut? And as such, bank lending is also unique, so do you believe that this will spur up or free up some more money for them to lend?
You see, the CRR cut – I have just explained a little while ago, we have normalized it. It was time to normalize, it was a temporary measure, so we have normalized it. What the banks do with the CRR money is entirely their call – whether they use it for giving credit or whatever purpose they want to use it, it is their call. And with regard to liquidity, it is surplus today. It is surplus today, perhaps on Monday next week also two-three days it is likely to be surplus, but we clearly see that we are going into a phase where liquidity is going to be very tight in the later part of this month, December, and continuing into January and perhaps into February. So we thought it was time to sort of normalize the CRR levels. And the other questions which you mentioned about banks, these things – we don't make monetary policy or liquidity decisions keeping in mind the balance sheet requirements of banks. Our policies are governed by the growth-inflation dynamics. Our policies are governed from the point of view of maintaining overall stability of the economy. Whatever issues are there in the banks, etc., that is dealt with through the supervisory arm of the Reserve Bank. Thank you.
Thank you, sir. Next I'll ask Mr. Ashish from...
Thank you, sir. So what about the FCNR-B measure, sir? Last time we saw upwards of $30 billion coming in after some relaxations. This time, is there some idea of how much incremental money would flow? What are your expectations?
I think these measures are intended to enhance capital flows and that has been clearly articulated in the circular. There is a scope for foreign non-resident Indians or eligible Indians who are eligible to invest into the FCNR-B to increase their deposit base in India, and that is purely what has been contemplated at this point in time. And it's a temporary measure which is there till the 31st of March.
...business circular, what is the percentage of holding, what type of business actions will be taken or regulatory actions will be taken on that basis? So we are waiting for feedback on the forms of business circular, and that will guide us in the way we look at investments into subsidiaries or associate companies of banks. Existing instructions – there are clear instructions. Already instruction... new instrument, it's become very popular now, and I think viewership especially youngsters – we want to remain in times requirement of the times. In this matter also we should be ahead of the curve. So it's basically a communication tool to communicate with a wider cross-section of the people. Sometimes it may be necessary not to give a detailed interview, sometimes it may be necessary not to do a press conference; you want to talk on a particular issue, some new measure has been announced that needs to be explained to the people. Podcast will help in those kind of things.
Sir, next we'll have Mr. Anoop from...
Sir, you said that the growth slowdown is probably over, next half's growth will be better, but at the same time you are saying that inflation pressure will be there, probably more than what we have witnessed. Are you indicating that February rate cut is also very risky?
I have not indicated anything about the future cycle of interest rates.
Thank you, sir. Next I'll request Mr. Sachin Kumar from Financial Express.
So the growth in unsecured loans has come down significantly in the past few months, but now there is one pocket of gold loan where the growth is very strong. So do you think it is a cause of concern and it may also warrant the same kind of measures to curb that growth?
I would request Deputy Governor Swaminathan to take that question.
See, the growth in unsecured loans at that point in time when we took some additional macroprudential measures last year was essentially to curb the exuberance that we saw in that particular segment, so that any possible stress or risk buildup is avoided. That was the intention with which we took that step. Otherwise, in terms of what should be the product mix as to how the banks should drive their business, it is purely a business call. And gold being a collateralized loan, the banks and NBFCs have shown preference to grow. What is more important for us is to ensure that there is fairness in their conduct towards the customers and that the appropriate norms relating to LTV, income-to-repayment obligations, etc., are being adhered to in a fair and transparent manner. So our instructions are more aimed towards ensuring orderly conduct of this business. Growth or product mix is something which is essentially left to the bank's wisdom to pursue.
What qualifies as exuberance according to you?
There are no golden numbers to determine which is less or which is more. Also, you have to see the percentages in reference to the base. When we talk about almost 170 lakh crore of bank credit, what is the proportion that the gold loan of 1 lakh plus crore constitutes? So percentages at times can look different, but what is more important is whether the portfolio is being built in a responsible manner, in a prudent manner. That is what we will keep watching. But in any case, we will be watchful of the incoming data, and if prudence demands that we should initiate some action, we will take it at the appropriate time. At this point in time, the guidance in terms of conduct would suffice, is our view.
Thank you, sir. Next may I request Mr. P from Hindu Business Line?
Good afternoon, Governor. DG, thanks. Governor sir, first question is with regard to Sanjay Sir asked about gold loans, my question is on MFI. A lot of MFI companies are seeing higher delinquencies, creating higher provisions. Is the RBI concerned? Somebody mentioned that only six months also they don't have any experience but they still get loans. So in the MFI sector, are we seeing any incipient stress building, and what are your views on that? And separately, what gives you the confidence that current fiscal 6.8% GDP growth can be achieved – the revised projection that you have done – because November we saw a 7% fall in UPI transaction? I know it's not the only indicator, but month-on-month it's fallen 7% and it is a month of festivals.
On the growth number, I think I have explained it elaborately in the statement and now also I have explained. What gives us the confidence or no confidence – I think it's for you to assess whether our numbers for the third quarter are realistic. We have made our assessment and we look at multiple factors, it's not just UPI, it's just one of the factors. But on the other part of your question on MFIs, I would request Deputy Governor Swaminathan to reply to that question.
Um, these are some of the segments in which, as we spoke last during the course of MPC as well, there are certain segments we saw increased slippages in the Q2 numbers that were emerging. And as we mentioned earlier, it was not very surprising to us because these were the segments which saw an outlier growth a year before, and we had taken some proactive measures on that. And we had also, if you would recall, in the August monetary policy statement, Governor has said that in these segments where enhanced slippage is being witnessed, we have requested the banks and NBFCs to strengthen their underwriting standards and to step up on their collection efforts to ensure that the stress does not translate into NPAs. So on the same theme, we continue to engage with the entities wherever we see any outlier behavior. At the system level, it is still not a big concern – about 20-30 bps uptick in stress is something which we are confident that the entities will be able to handle. And in certain entities where these particular numbers are a little outlier, we deal with them on a bilateral basis, examining the steps that they are taking to ensure that the stress is not widespread. And third, through the SRO, there are enough levers available to us to ensure that the self-regulatory organization in this particular space – in the MFI space – are taking adequate steps to sensitize their members to adhere to the prudential guidelines of Reserve Bank and ensure that the household income assessment and the repayment obligation towards net monthly income, etc., are strictly adhered to. And as Governor said earlier, to avoid the push effect, just respond to the demand rather than give loans to achieve someone's target. So I think these are three-four key messages that we have managed to deliver in the last two-three months. I think that should be good enough to ensure that the balance is restored in this particular segment.
Yeah, please, on the UPI numbers...
I think we shouldn't read too much into that. There was an oversized increase last month because of the way the festivals fell this year, so that got corrected for this month. So I expect that the trend will continue going forward.
Thank you, sir. Next I request Mr. Lendu Mishra from The Hindu.
Good afternoon, Governor. US President-elect Donald Trump has reportedly threatened to create tariff barriers and break nations like India. Will it impact our exports, or is it a matter of concern?
First thing is, let's not prematurely let the policy come. And so far as the BRICS – you are referring to the BRICS countries in the context of the BRICS currency and all that – sorry, yeah, yeah. So now, the BRICS currency was an idea which was raised by one of the members of the BRICS countries and it was discussed. No decision has been taken in the matter. The geographical spread of the countries also is a factor which has to be kept in mind. Unlike the Eurozone which has a single currency and geographical contiguity, BRICS countries are spread all over, that also has to be kept in mind. And with regard to the dollar, de-dollarization, etc., so far as India is concerned, there is no step which we have taken which specifically wants to de-dollarize. All that we have done is that we have permitted opening of Vostro accounts and we have entered into agreement with a couple of countries by now to do local currency-denominated trade. That is basically to derisk our Indian trade dependence on one currency, which can be problematic at times because of appreciation or depreciation. So as a part of derisking our trade, that is a step which has been taken. De-dollarization is not our objective, it's certainly not on the table at all. I think it's more of a narrative which is being said in some sections of the media. Our effort is basically to derisk trade – nobody is talking about or thinking about de-dollarization. Thank you.
I'll request Miss Seema from The Economic Times.
Thank you, sir. Sir, could you share your thinking behind the introduction of the SORR that you have spoken in the policy? And sir, could you give some idea on the timelines for the draft guidelines, because almost four of them are already being talked about – project finance, LCR, ECL, climate finance? Could you give some idea when they would be?
I think you can ask... so as of now we have two benchmarks which are set out by the FBIL – one is the MIBOR which concerns uncollateralized transactions, and we have the MIBOR, MIO, which is based on the market repo. But the T-bills which is 60% of the market is not in that index. So this index that we will have now will capture all secure transactions. That's the limit. And on the other part, I would request DG Rajeshwar Rao to give... the guidelines are fairly major game changers as far as the banking system is concerned. So we have got significant feedback on all these guidelines; those need to be carefully evaluated, and we will calibrate the way these guidelines are rolled out. So I think we are in the process, we are close to finalizing some of the approaches. I will not give a definite timeline. We have followed a very consultative approach. These will all bring about significant changes in the banking system, so we are proceeding on it. These measures are necessary, but we have to proceed in a very careful and calibrated manner, taking into account the suggestions and other issues which have been raised by the banks and several other stakeholders. So we want to move very carefully, very cautiously, so that when implemented, the implementation is as non-disruptive as possible.
Thank you, sir. Sir, with your permission, two more questions. So I'll request Mr. Ben Jo from New Indian Express.
Okay, sir. Hope to see you announcing the next policy, sir, and congratulations for the six years. And we will miss you at the next policy. My question is what... asked about... building on that, the rupee has been under pressure, and if the Trump tariff war happens, say 10% on Indian exports, what could be the impact on the rupee?
I think I'll take that question. The tariff hypothetically, if it happens, will not be an isolated event. There will be other events around it – for instance, they say that perhaps China may react by devaluing the currency, or there might be retaliatory tariffs. So at this point, it is very difficult to say what will be a unilateral move and unilateral effect. Let us wait for the equilibrium general equilibrium effects.
Thank you, sir. And last, I'll request Mr. S to pass.
Thank you, sir. Good afternoon, Governor. A couple of months ago there was a paper co-authored by you, Dr. Patra, saying that the rate hikes since May 2022 have negatively contributed to growth by around 160 basis points. So has too much growth been sacrificed to reduce inflation? And are those rate hikes and the retention of the repo rate at 6.5% expected to continue acting on growth going forward? And second, on FCNR-B, is the FCNR limit increase to reduce the pressure on RBI's forex interventions, because the monetary policy and forex management policy has been at odds? The interventions have drained out a lot of rupee liquidity. So is that also been a consideration?
I think since the paper was authored by Dr. Michael Patra, he should reply.
So I'm happy that you've read the paper, but I do hope you've read it carefully. What it says is that the cumulative rate increase of 250 basis points reduced inflation through aggregate demand by 160 basis points. But inflation fell from 7.8% in April to 3.8% recently, to in August. So of the 320 basis points, only 160 is due to monetary policy. Now in the same paper, you'll see that there are charts which show the impact of an interest rate change on output and inflation. The impact on output starts after the rate increase and reaches its peak in the third quarter after the rate increase, it plateaus in the fourth quarter, and after that it fades away. So if you take the cycle of rate hikes, the cumulative peak was in July-September 2022 in terms of quarters. So take four quarters from there for the effect on output – July-September 2023. So after that, output starts to rise back. The effect on inflation lingers for 10 quarters. So by now, output has started to go back and it has actually crossed what we call its potential level. So to ascribe the growth slowdown of the second quarter to that is, I think, stretching the case too far.
So one last question... Miss Gopa, you would like to ask?
Right. I mean, just adding to his question – is that a concern? Was that a consideration – the forex reserves, given that we had seen the kind of outflows last two months and more is expected, the market is expecting a similar quantum of outflows in the next few months. Is the FCNR-B hike a consideration behind coming out with that? And also, will there be more measures to protect the currency? And my second question, sir, on usurious rates – RBI has raised a lot of concerns around usurious rates. Now, the Reserve Bank has followed a principle-based regulation and has removed any sort of caps on lending rates. But given the kind of concerns that are rising in the industry – MFIs, unsecured loans – is there a need to define a boundary or a threshold in terms of lending rates?
You will take that thing? You will take us, you will take... but before that, is FCNR-B? Let me say first thing: I want to say that our forex reserves are quite robust even now. The depletion in the reserve which has happened in the last few months – part of it, and a good part of it, is because of valuation losses. Still, our reserves – the latest print I think we gave out 656 or something like that, I don't remember the number exactly – but reserves are still quite adequate. We are confident of dealing with any spillovers. Now, you mentioned that is the Reserve Bank concerned about outflows and all that? You see, somebody said that key inflows are expected, so how the forex market will behave going forward we cannot really assess. There are so many uncertainties – new administration in the US that will take over, the response of other countries. So it's a very dynamically evolving situation. So as per requirement, we will take action. So at the moment we have no concern at all. It is a facilitation which we have provided to attract more inflows and an opportunity for NRIs to invest. And I actually lost a bit... because your question two questions so long... Is there anything else you asked in that? FCNR-B – we're getting more measures? No, about more measures, you will have to wait. I can't spell out now. More measures as and when required we will take. But on the FX front, let me say very clearly and emphatically that our forex reserves are strong. I have devoted two paragraphs in my statement to explain the rationale for RBI's forex management. The focus is not just to deal with spillovers; it is an essential part of Reserve Bank's policy to build stability of the macroeconomic stability and financial stability of the domestic system. Thank you.
