RBI Post Monetary Policy Briefing LIVE | RBI Governor Shaktikanta Das Statement | N18L | CNBC TV18

Press conference. This is the last of this calendar year and I'd like to welcome all the media friends for this press conference. We have with us Governor Shaktikanta Das, Deputy Governors Dr. Michael Patra, Shri M. Rajeshwar Rao, Shri T. Rabi Sankar, and Shri J. Swaminathan. Also with them are our senior colleagues, Dr. O.P. Malhotra, Executive Director, Dr. Rajiv Ranjan, Executive Director. So we'll begin the press conference with your opening remarks. So may I request you to do the opening remarks.

Thank you, sir, for those opening remarks. And what I propose to do is that a copy of this we will just upload on our website so that it is easy for all of you to do the reporting. Thank you, sir, for those opening remarks. Before we go ahead, may I request my media colleagues please wait for your turn to be called out and restrict yourself to one question each. If time permits, then we'll go for another question. So I'll begin by inviting Mr. M. Govindrajan from Economic Times to ask his question.

Good afternoon, Governor. So this time in terms of monetary policy, you have taken out all the surprise. It's kind of more than what the market asked for. So we move to the next topic that you mentioned in terms of the financial stability. When you say that you won't wait for the house to catch fire, so last time you saw some smoke in unsecured loans and NBFCs. So which are the areas where you see smoke now, in the sense for you to say that you won't wait for those to catch fire?

You are warning about the unsecured loans for quite some time before you acted. Is there any segment where you feel there is a warning necessary now?

Thank you, sir. I'll move on to Ms. Latha Venkatesh from CNBC TV18.

Thank you, Yogesh. And thank you, Governor, for asking people to drop the word 'Honorable'. I think that's an extremely honorable statement to make. Thank you for that. So, questions. For the first time, you have used the words 'regulators should also be mindful of overtightening'. Can we therefore expect the interbank call rate to come towards the repo rate of 6.5%? It has been at 6.75% for the better part of a couple of months. On the issue of financial stability, you have just said that connected lending framework will be to strengthen the pricing and management of credit by banks. Does this mean that there will be a little more tightening? Will that be the net result of that framework? And just a doubt which comes on this connected lending, the third question, so it's connected to connected lending, then you announced the unsecured loans. Was there a worry that bank loans are going to the stock market? Because there was a report from Ashish Gupta that derivatives are now 400 times. Is there any fear that this money is going there?

Thank you, Governor. I think there is a bit of a misunderstanding between interconnectedness and connected lending. When we talk about connected lending, it is essentially the lending to persons who have the position to control or influence the decision of a lender. So it is in that context that this guideline on connected lending is being conceived of. Right now, the regulations vary between the regulated entities. There are scattered provisions. So in order to bring about uniformity in the process of these regulations, we are coming out with some draft guidelines which will help to clarify the position and have a uniformity in the regulatory approach to connected lending amongst all regulated entities.

If you've noticed, in the first few days of December, the call rate has already started gravitating towards the repo rate. And in fact, on the 4th or 5th, it was 6.45%, sub-repo. And you'll see that this is coincidental with government spending. Government balances have been coming down and therefore, so the previous tightness was also associated with a buildup of balances. Okay. And on the overtightening, I think I'll let the author...

I persist. Was the stock market exuberance one reason? Do you fear bank money going there?

Thank you, sir. I'll move on to Mr. Anurag Mishra from ET Now to ask his question.

Sir, I want to draw your attention towards the announcement which was made in the last policy. You had warned about unsecured loans portfolio and later on there was announcement from Reserve Bank of India. One, I want to understand that a few of the players have said that they are going slow on sub-50,000 or small ticket size loans. Did you see some problem there particularly? And another thing, NBFCs had also claimed to have reached out to you regarding the problem which will be arising out after the circular which you have issued. Is there some rethinking? Have you done some discussion?

Thank you. See, as it was mentioned while making that announcement itself, that it's a preemptive measure to bring certain prudence and to bring an end to any sort of exuberance that may be exhibited by certain lenders. And the effort was made over the previous 3-4 months by way of sensitizing the players to put adequate internal control measures to ensure that the risk buildup is avoided. As the market was not responding enough to that, there was necessity for, as we had mentioned earlier, that we watch the data and basis the data we have taken certain measures to strengthen the prudential measures that the regulated entities have to put in place. So it is too early to see or pass a conclusion as to what sort of effect it is taking. But at least from our interactions with the market participants, the financial system, as well as some of the articles are alluding to the fact that risk management practices are getting better, underwriting is getting better, and any business model that is likely to throw up an enhanced risk is curtailed. So that is our intention. So it is not to curtail the growth. And we have taken care to exclude growth drivers, the segments like home loans or vehicle loans or to the small borrowers or to MSMEs. Those segments have been kept outside of this purview. So we would expect the lenders to conduct themselves and draw their business models in a manner in which an avoidable risk buildup is mitigated.

After your assessment, is there also consideration, as I mentioned about NBFCs, that you are having some kind of discussion with problems which are faced?

See, essentially these measures were intended to address the interconnectedness that was building up within the financial system and also to curtail, because as we had highlighted, it was growing at about 24-25% on a year-on-year basis as compared to the rest of the system that was growing at about 12 to 14%. So that particular segment of bank lending to NBFCs had to be kind of calibrated. So that we have done, tried doing it through the risk weight. And also the NBFCs' growth in certain segments was an outlier. Again, that particular segment we have to add risk weight. So it's a kind of a prudential measure. At this point in time, it is not to deny liquidity, it is not to ration the lending. It's only we would like the lenders to have adequate risk weights put in place, limits to be set in place for a prudential monitoring. That's all.

Thank you, sir. I'll move on to this side. Sir, today one TV channel has been launched, NDTV. I'll request Vishnu to ask his question from you.

Thank you so much, Yogesh. Governor, first question, my point that I want to ask you is whether these five policies of no action and maintaining this withdrawal of accommodation stance, does that inadvertently communicate a neutral stance to the market? Because you are not neutral yet, but five policies of no action could indicate that. That is five policies of no action and as well as maintaining the withdrawal of accommodation stance, does that communicate neutral stance to the market by any chance that you are neutral on rates?

Thank you, sir. I'll invite Mr. Manojit Saha from Business Standard to ask his question.

Good afternoon, sir. Is RBI comfortable with an EMIR-compliant MoU with ESMA? Does that address the concern of inspection, audit, and possible penalty? Is RBI comfortable with that? And also one clarification, you didn't mention the word OMO this time. The show was hanging for the last two months. So can we assume that it's off the table now because liquidity has been tight?

Thank you, sir. We believe these agreements with respect to market infrastructure agencies like CCIL should be underpinned by the word that is used in their regulations, cooperation. There should be cooperation documents, cooperative documents. And in that respect, we believe that they should follow the principle of mutual respect, one, and principle of mutual trust. They should also be characterized by the principle of deference to local regulation. In other words, we are not comfortable with regulations anywhere which are characterized by extraterritorial jurisdiction. So, the one we signed with Bank of England, it's there on the website. You would have gone through, you would have noticed that the emphasis is on deference and cooperation.

Thank you, sir. I'll move on to Mr. Shayan Ghosh from The Mint.

Hi. Following your guidelines on risk weights, a lot of lenders have decided to curtail smaller loans, as he also asked. But then do you think that the sudden closure of the tap would affect that section of borrowers who were so far dependent on that? That's one. Second question, sir, is that there have been a lot of instances of cooperative bank board changes recently, then ED raids and all that. So as a regulator, how do you tackle the cases of corporate governance issues at the cooperative bank level?

I think the first point about the risk weights, I think this, as already mentioned, it's essentially a prudential measure to curb growth or moderate the credit growth in certain specific sectors. It is not to turning off the tap. The tap is open, but only thing maybe the pressure has been reduced a bit. So I don't think that is really the intention and not unlikely to be the outcome of the measure which we have actually announced. Now coming to the governance issues, I think broadly we say that through the supervisory process, we have a close monitoring of the various parameters of the functioning of the regulated entities, which includes governance, business models, risk management, compliance etc. So it is a package which monitors the entire functioning of these regulated entities. So if there are certain concerns about the regulated entity in so far as governance is concerned, there would be an engagement with the concerned entity to take appropriate action as may be necessary.

Thank you. Just to supplement on that, on this up to 50,000 category, to put a context to it, the composition of that particular segment is less than half a percent of the total outstandings. So while of course it may be dealing with a lot of number of people, it's a segment that cannot pose great risk on its own because the total quantum itself is less than half a percent. That's in terms of the context part. The second is that we have, as I mentioned, what we would like to curtail and expect the lending institutions to provide for more by way of additional risk weight is some of those consumption-led segments or unsecured credit which do not have a defined end use. We have taken care to exclude to support whatever growth drivers are already there. So whatever lending that was taking place for which a clear end use was not visible or completely unsecured without a clear purpose is what will get curtailed. Basis this, there will be some recalibration of business models also, recalibration of the growth numbers. That is what is the intended effect of the regulation. So if it is playing out, I think that is only giving the intended results. And as DG M. Rajeshwar Rao clarified, it is not our intention to deny or ration credit. I think there are enough headrooms available. The exposure framework permits adequate lending to be provided for supporting the growth. And on the second part, again to supplement on that, governance and effectiveness of assurance function has been on top of our priority. So from a qualitative perspective, while of course quantitative parameters and the financial system looks very good at this point in time, what we would like to focus is on the qualitative parameters. That is how you see it has always been a focus area, but you might hear us more on governance and effectiveness of assurance functions because we feel that strengthening of these two is what will ensure a continued stability of the financial system. So that's why the emphasis is.

Thank you. Thank you, sir. I'll request Ms. Shama Mishra from Dainik Bhaskar to ask a question.

Hi, Governor. Are there any external factors that are looking promising for the Indian economy?

Is there anything else you would like to add? That's all. Thank you, sir. Moving on to this side, I'll request Mr. Anuj from Bloomberg to ask his question.

Thank you, sir. Sir, you are sounding very cautious about inflation. And previously you have said that we will not consider easing or think of easing before it settles around 4% on a sustainable basis. But going by the analyst, it is not going to happen before 2025. So are you going to keep rates elevated for this whole year, next year, or something else will prompt you to cut? Probably US Fed rate or something?

Thank you. Thank you, sir. I'll move on to his right. I'll invite Mr. Ryouichi Hanada from Nikkei to ask his question.

I want to ask about the general assessment of the Indian economy. As everyone is aware, the latest GDP statistics show the slowdown in growth. However, at the same time, some private institutes reported that the jobless rate temporarily rose over 10% in October. I understand it's not a government official statistic, but what do you think about the coming and future expectation regarding the employment environment in India?

Yeah. There are now very credible official statistics on employment. So I will refer you to the Periodic Labour Force Survey which is put out by the Government of India. That has been conducted since April 2017. So you have a consistent series right from 2017 July. And if you look at those data which are available right up to September 2023, the labour part, you get the labour participation rate, the worker-to-population ratio, that is the amount of employed people in the population, and also the unemployment rates, not only for the country as a whole but for women and men and also for urban and rural areas. So if you see the labour participation rate, it is at its highest level ever, people wanting to or seeking work. And as regards the unemployment rate, it has fallen to 6.6%, not 10%, and that is probably the lowest in the series right now.

Thank you. Thank you, sir. I'll invite Mr. P. Shukla from Financial Express to ask his question.

Good afternoon, Governor. Good afternoon, DGs, sir. The transmission of your rate hikes done through the last year and this year, it's not reflecting in large banks' savings account deposits. What are we doing about that? Like Latha said, a lot of people are parking money as well in mutual funds. So small banks are not able to register any growth in their CASA, minuscule, single digit, lower single digit. So what's actually happening there? And secondly, sir, the willful defaulter circulars which you have asked banks to apply within 6 months, there's a representation made by IBA to extend the timeline to one year. So any update on that?

If I can come in on the willful defaulter. Yes, on the willful defaulter case, representation, if I may say so, the entire draft circular has been put in public domain for comments. We have received feedback on the circular and we are in the process of analyzing them before we refine and finalize the circular. So this feedback also will be factored in while taking a final decision on the circular.

When will the final circular come, sir?

No, we are just in the process of analyzing. So shortly.

Thank you, sir. I'll move on to the left. Mr. Mayur Shetty from The Times of India.

Thank you, Yogesh. Governor, I wanted to know the thinking behind the announcement on the RBI providing cloud services. Is this an extension of the principle of data sovereignty and asking payment companies to have on-soil storage of data? And I had another question on growth. What makes you so confident of growth given all the commentary that we're hearing on sluggish private investments, uncertain rural demand, and slowing import demand also?

Data is increasing, data storage, data processing efficiency is a major issue there. And currently, you know, this data is sometimes kept in-house, on premises, sometimes in other clouds. We thought the basic driver behind this is to provide a structured, scalable data storage and data processing facility, which is why the cloud has been talked about. The idea is to ensure security, integrity, and safety of data. It has got nothing to do with data sovereignty that you have referred to in your question. What services will be provided and all will be determined in the course of time. Whether it will be infrastructure as a service, which is storage, or whether it will be platforms that will be provided, whether it will be software that will be provided, especially for smaller entities, you know, cooperative banks and those things. This provides a lot of efficiency in terms of scale because for each one to maintain their database and all that would involve a large amount of investment, skill and all that, which this cloud is expected to provide. This cloud will be owned by financial sector entities as we have clarified. Going forward, at this point of time, our idea is to just give it a push, let it start out and then let the system manage, like a digital public infrastructure. It's like a digital public infrastructure.

Yeah.

On the growth part, you can. Yeah. As you know, the first half's estimates have beaten all estimates, including ours. And if you just sort of put that actual number and the projections we made in the last policy together, you will come with a number close to 7 or at 7, 6.8, 6.9.

Thank you. But if you look at October-November data, the high-frequency data which we use for our nowcasts, they are all very robust right now. So if you just take October-November data, you'll exceed 7. So at the current time, 7 looks like a conservative estimate.

Thank you. Uh, thank you, sir. I'll move on to, you know, Ms. Shraddha Bhatia from Thomson Reuters. But let me just, you know, talk about, you talked about the rural demand, you talked about now, and also you referred to capex. Perhaps I would like to touch up on it now. Rural demand, despite late kharif harvest in certain parts of the country, kharif, the rabi sowing, I'm sorry, the rabi sowing, two-thirds of it is already complete. Secondly, we have also seen that the two-wheeler sales, they have posted a significant turnaround. And in fact, according to the data provided by the Federation of Automobile Dealers Association, FADA, for the 42-day festive period during October and November, the retail sales of two-wheelers recorded a growth of 20.7%. FMCG volumes in rural segment have also shown improvement. In fact, they are growing at about 6.4% right from the beginning of this financial year, right from April onwards. The rural demand for FMCG is steadily picking up. And as per the latest data, they have grown by about 6.4% in the second quarter, in the whole of second quarter. This is FMCG volumes in the rural sector. Then also very interestingly, the demand for MGNREGA, Mahatma Gandhi NREGA, that demand also has declined for the first time in this financial year during the month of November by about 4.6%. So that is why we are saying that there are signs that rural demand is also turning around. Now with regard to investment pickup, government capex continues to be very strong. In fact, the general government capex, that is capital expenditure undertaken by both central government as well as the state governments, they recorded a growth, capital expenditure of general government recorded a growth of 36.7% during the period April to October, in the first seven months from April to October. 36.7% growth in capital expenditure. Secondly, private capex is also showing signs of revival, particularly in sectors like petroleum, steel, cement, and chemicals. Capacity utilization has now reached a kind of a threshold. In fact, it is higher than the long period average at 74%. So it has reached a point where we can expect private investment also to start picking up. And already quite a bit of investment is taking place by private sector manufacturing companies. For example, as reflected in the fact that investment in fixed assets by listed private manufacturing companies, they registered a growth of 10.5% in the first half of the current financial year. And a number of companies, we have, according to our survey and the inputs that we have received, many companies in the manufacturing sector are using their own internal reserves and surpluses to invest. They are not approaching the bank or they are not resorting to any other kind of borrowing or raising funds. They are using their own internal reserves and surplus to investment. And then the high-frequency indicators of investment, such as steel consumption and cement production, and very importantly, imports of capital goods, they are also showing good growth. So all this, I think, indicates that the investment cycle should continue into the future.

Thank you. Uh, thank you, sir. I just wanted to check, you mentioned in your statement today that FII flows have started to pick up. They've also picked up on the debt side. And with India's inclusion in the global bond index next year, we could expect further flows. So even if the overall flows into India are comfortable, would you require any kind of macroprudential norms, say if there is heavy investment in say the benchmark paper or any individual paper? Are you considering any of those factors? And how would RBI respond to those?

So just one question, I'm clarifying my question. So I was talking about if there is heavy investment in one particular bond, would that be a matter of concern? Overall flows may be comfortable, you've been managing those, but say the benchmark bond, if say a percentage of ownership in one bond becomes very heavily foreign-owned, is that going to be a cause of concern?

I think we should cross the bridge when we come to it. You know, saying that what will happen if there is a lot of investment, most central banks globally, we have not had that issue here before, but most central banks globally monitor the total holding in any particular security by any individual investors. So that's something we also monitor. But as I said, that's not something that we have had. If it comes, we will deal with it at that point in time. Just to say one other point, if you look at our history, you know, the total amount that people say will come in through the bond index inclusion is between 20 to 25 billion. I think as far back as in 2013, we lost what, about close to 20 billion dollars in a very short period of time without having too much of a problem. You know, we managed that. So I think the concern that this could cause volatility and all that is a bit overblown. But from that, we have all the instruments necessary, the reserve levels are much higher, the parameters for our exposure or vulnerability are much better, and so on. So thank you.

Thank you. Thank you, sir. I'll move on to Ms. Shraddha from Zee Business to ask a question.

Thank you, Governor. Connected lending framework, existing customers, framework reviewing which is going to bring in more, improve access to smaller exposures. Can you quantify small exposures? Framework, access, but connected lending, Deputy Governor Rajeshwar Rao already clarified. You see, connected lending has nothing to do with this interconnected issue. Connected lending basically...

Interconnected, smaller ticket loans, sir, will it affect that?

No, no, this is, yeah, I would say this is actually a follow-up on the recommendations of the working group which was accepted by the Reserve Bank, working group on digital lending, which was accepted by the Reserve Bank last year. And we had come out with guidelines. We said we'll also look at regulating the web, what do you call, lending through the web platforms. So we are planning to come out with guidelines which will specify what will be the, the basic idea is the lending service platform, they may collect information from various sources and give the detail to the customer. But there could be a preference to certain things, certain other things may not be covered. So we will kind of give them some guidance on what should, so that the borrower has full transparency on what are the rates available to him. See, it should be neutral. Platform through some other method, particular loan product. We are trying to make it transparent, neutral, and at the same time...

Thank you, sir. So we'll take last few questions. Last few, yes, sir, okay. Because there have been some people who have been waiting very patiently. So I'll start with Hamsini K.K. from Hindu Business Line, followed by Harsh Vasu, and you know, with Mr. Pankaj Joshi from The Informer. These three.

Okay, hi, thank you. There seems to be a sort of growing reliance by most of the lenders, banks and NBFCs put together, for risk-based pricing. This is both on the secured as well as the unsecured side. You've attacked the unsecured side through the RWA, but yet there is a sense that we can price the risk very well at a regulatory level. Is this something that you all are very comfortable with? And there is another layer to it on the secured loans where we're seeing that the terminal value of assets are actually reducing in terms of their market value when they put out a new property. This is evident with cars, this is evident with home loans etc. as well. But the pricing between the two is really shrinking. Whether we take mortgages versus LAP or second-hand cars versus new cars, it is shrinking. Is that a cause for you?

So essentially, risk weights have to be aligned with the type of the product and the segment to which it pertains to. So the macroprudential level, the regulations try to segment them on that principle and then accordingly we ensure that the risk weights are assigned. So the lenders will accordingly calibrate their business models. So wherever we see a possible risk buildup, as a preemptive action, we have taken certain measures. And to remind you, that these additional risk weights on some of the items are only bringing back what was actually prevalent pre-COVID. These segments were sort of, a bit of relaxations were brought in to facilitate a very unusual situation. So they are now back to the normal numbers. Apart from NBFC, which was a recent phenomenon which we had to act upon.

Okay. So that was the Reserve Bank of India top leadership, of course, addressing the media after announcing the monetary policy for December. In terms of some of the additional information that has come out through this press conference, first, the Governor reiterated that no change in rates for the last five policies is not to assume that the RBI in any way is indicating that they're moving towards a neutral stance. He said it is wrong to assume a change in our approach or any kind of loosening is around the corner. The target or the road to 4% inflation is long and until they get there on a durable basis, there will be no change in the stance. He also clarified on the connected lending rules. Now, connected lending, he said, is very different from interconnectedness risk. And he said that this is more in relation to any person in a bank that may be in a position to influence the credit-making decision or any two interrelated parties. So some rules or guidelines which will be more unified and consolidated, that is something that is expected. And other than that, of course, very bullish on the growth. And in fact, even going to the extent of saying that the 7% GDP growth number for the year that they've given could also be a conservative estimate. On that note, we have a lot more to analyze, but we have to slip into a short break. But up next, we will continue a special RBI policy cover with a whole host of guests to decode these additional statements and what they've made of the policy so far. So stay tuned for that.