Live: Governor Shaktikanta Das Press Conference Post RBI Monetary Policy | Credit Policy |CNBC Awaaz

Thank you. As I have done on previous occasions, I would like to summarize whatever I have said in my statement. I have nine points very quickly. First, domestic economic activity continues to be resilient. India is poised to become the new growth engine of the world. Second, declining core inflation is a silver line, but headline CPI inflation remains vulnerable to recurring and overlapping food price shocks. Third, the MPC remains highly alert and will not hesitate to take timely and appropriate action if the situation warrants. Fourth, it's emphatically reiterated that the inflation target is 4% and not 2 to 6%. Hence, monetary policy needs to remain actively disinflationary at the current juncture. Fifth, liquidity will be actively managed consistent with the monetary policy stance. OMO sales will be undertaken as necessary. Sixth, banks with surplus funds are encouraged to lend in the interbank call market for better returns instead of passively parking them in the SDF. Seventh, the financial sector balance sheet remains robust, while the Reserve Bank is closely monitoring the emerging trends in banks and NBFCs. Banks and NBFCs are expected to strengthen their internal surveillance mechanisms and institute suitable safeguards wherever necessary. Eighth, financial stability is fundamental to price stability and growth – that is the core principle which we follow. Ninth, the external sector is eminently manageable. Thank you.

As I have said in my statement, first thing I would like to say is that it has nothing to do with the bond index inclusion. Let me reiterate: it has nothing to do with bond index inclusion. It's a part of our domestic liquidity management. With regard to calendar, I have said we will watch the evolving trends. There are several moving parts in the whole liquidity scenario. We will watch the evolving trends and we will notify as and when it becomes necessary. Thank you. So we are not, at the moment, propose to give a calendar.

You see, a change of stance to neutral will be on the table when the situation becomes so. At the moment, the monetary policy rate hike is still incomplete. I have given the numbers in my statement. We have increased the repo rate by 250 basis points, but it has not fully translated to either the deposit rates or the lending rates of the banks. There is still some distance to be covered, so we would expect that to align with the increase in the repo rate. So therefore, at the moment, the stance remains withdrawal of accommodation.

I would request everyone to just stick to one question. So you see, liquidity is not in deficit. The liquidity over the last two or three weeks went into a deficit mode mainly because of advanced tax payments and GST payments. So therefore, part of liquidity went as payments for GST and payments of advanced tax. Last month in September, advanced tax was in the middle of September and GST was around 20th of September, so for those two or three weeks the liquidity became very tight. But overall, if you see the liquidity, it is surplus. We have announced withdrawal of 2,000 rupee notes. We have so far got back about 3 lakh 43,000 crores and only about 12,000 crores are left. 343,000 crores we have got back, of which 87% has come as bank deposits, the rest is exchange of cash to other denominations across the counter. So there is a substantial amount of liquidity which has built up because of withdrawal of 2,000 rupee notes. Government spending is also now picking up. The taxes came around 15th-20th of last month, government spending has picked up and will pick up, so that will also add a lot of liquidity in the system. And in the festival season, demand for currency will go up, so currency in circulation will go up, which will drain out some amount of liquidity. But overall, liquidity continues to be in surplus. So we have to be very watchful. That's why I have said we have to be active; there will be active liquidity management. We will be very watchful. The whole liquidity matrix has several moving parts. We will remain watchful and we will undertake whatever operations are required from time to time. OMO sales is one which we thought would be required, so we have made a mention about it in my statement. Thank you.

First point is that this will be done through an auction process and not through the NDS home platform. This will be an auction process. We will notify it and then we will undertake the auction. That is the first part. And with regard to global bond yields, our liquidity management – what I have announced, again let me reiterate, has nothing to do with global bonds. If you see the statement carefully, what we have said is that our liquidity management will be consistent with our monetary policy stance. So it will be consistent with the domestic monetary policy stance in the context of the overall liquidity situation. So it has got nothing to do with bond yields going up in advanced economies. And what was the other part? You asked general observation: when yields go up there, as an EM central banker, what are your fears, what are your tools? You see, our domestic bond yields are reacting to domestic factors. Our domestic bond yields are not really reacting to international factors like bond yields going up in some advanced economies. Our bond yields are determined primarily by domestic factors as it stands today. The bonds going up elsewhere, especially in the United States, do normally lead to currency depreciation in emerging market economies. But the difference in the context of India is that our forex reserves are sizable, very comfortable, so that gives a lot of confidence to the market. And secondly, we do intervene in the market to maintain stability of the currency and to prevent excessive volatility. So primarily, if I can put it differently, we use one instrument for one target, one objective. When you use an instrument, it may have some collateral impact elsewhere. So basically, we use one stone to kill one bird. Of course, to kill a bird is not the right thing to say in the context of safety of animals, but this is a manner of speaking. So I'm not saying that we'll go and kill a bird, please don't take it the other way, especially the animal lovers and bird lovers among you. But on a serious note, we use one instrument for one objective. So that is how it stands.

I think I would request Deputy Governor Michael Patra to reply to that.

No, I think as I just replied, we use one instrument for one objective, one stone for one bird. There may be some fallouts, there may be some collateral effect elsewhere, but primarily we use one instrument for one objective. For liquidity, whatever we are doing it is because of the domestic liquidity situation. Foreign exchange, the pressure on the exchange rate because of the dollar index going up etc., that is managed through – as I said we have reserves enough, and that is managed through market intervention to prevent volatility. So that is how it stands. I don't know, have I answered your question? Or is there something else?

No, it is not a yield management. The OMO which we have announced is not a yield control or yield management instrument. It's entirely to manage liquidity. Would you like to say something?

I think the inclusion of the African Union in G20 is a very welcome development. It goes in line with India's objective of placing the voice of the Global South on the international, on the global table. G20 is a multilateral forum and you cannot have a situation where a whole continent is left out of it excepting South Africa which is at the southernmost tip of the African continent. So to that extent, inclusion of African Union is a very welcome development. And now the financial sector issues and other factors relating to Africa will be discussed in G20. Africa now gets a voice in the G20 forum to express the situation in various African countries and to express their priorities and expectations from a multilateral forum like the G20. This is very much in line with not only India's priority but also the international priority to listen to the voice of a large continent like Africa.

You see, I have said in my statement that the balance sheet of the financial sector, especially the banks and NBFCs, continues to be robust. All parameters, look at any parameter with regard to banking, with regard to NBFCs, they are better. In fact, the GNPA figures of the banking sector, the unaudited figures we have now got for end of June, look even better. NBFCs are also experiencing a similar situation. Our objective in saying what we have said is that we have to be mindful of what can going forward pose a challenge, what can become a future risk. So in certain segments of retail credit, we saw high credit growth. So it is only to caution the banks to strengthen their internal surveillance systems, watch the trends, and take whatever measures are required. So far as the Reserve Bank is concerned, the Reserve Bank supervision department monitors it very intensively, but the first line of defense is the bank and the NBFCs themselves. So it is to sensitize them about the credit growth that is happening and not lull them into any kind of complacency. This is in line with what I have been saying over the past few months.

We are the regulator for the entire banking system, so whatever we say is for the entire banking system which includes public sector, private sector banks, includes small finance banks, includes various categories of NBFCs – the upper layer, middle layer, and base layer. So it's for everyone. We don't differentiate in our messaging among which sector the banks belong to. Wherever individual bank related issues are involved, our supervisors normally engage with them directly. The problem is more among the private sector banks internally? What is the rationale for the warning? Public warning during the policy? No, as I said, it is not because we are seeing that some problem is already there. We are only sensitizing them that you have to be careful, you have to keep your eyes and ears open and nose also open. You have to smell where the crisis is likely to come up. At the moment, the banking and the NBFC sector are stable. Is there anything you would like to add?

I think D Rajeshwar can take that question.

Sir, the government has – first thing is it's not for me to really comment on that, but since you have asked, as a perception as a banker to the government, let me say that the government has a fiscal consolidation path which they have announced in the budget. There was fiscal expansion because of COVID time requirement, but the overall expansion that India did under the fiscal was very calibrated and targeted. After the pandemic, the government has announced a fiscal consolidation road map and by and large they are sticking to that. Even recently, so far as the current year fiscal deficit is concerned, the finance ministry has stated that the government will stick to the fiscal deficit and they are targeting this fiscal consolidation road map. So so far as central government finances are concerned, I don't see any major problem or anything that worries the central bank.

I can tell you that the banks are far more sensitive with regard to risk management and with regard to other areas which form part of governance, namely risk management, compliance, and even internal audit. So therefore, the Reserve Bank, as an institution through its supervisors, continues to push for improvement. But otherwise, I think overall the governance standards – consisting of what I've said that the risk management, the compliance culture, the internal audit, and the sensitivity to maintain a robust balance sheet – that has definitely improved. But you have to improve further. I mean that applies to everyone in every situation.

I think you can take that question.

No, we don't like to do unnecessarily. We would not like to do micromanagement. It is for the banks to assess their own liquidity requirement and manage their liquidity in the most efficient manner possible. So we have observed this and just sensitized the banks. We would not like to get into that kind of micromanagement of liquidity in individual banks. But some conclusion we reached and we have now voiced our view to the banks. Now it is for the banks to take a cue and act upon that. And I do expect the banks will take the signal and act appropriately.

Okay. On the fintech part, I would request Deputy Governor Rajeshwar Rao to reply. But there is no monopoly; it is not only one or two banks who are doing it. I have the details. Today's position is that the MSF – marginal standing facility – where banks have all banks put together have borrowed 80,000 crores, and in the SDF the deposit is 56,000 crores. It is spread across banks. Maybe yes, there are few banks which naturally – it's again linked to their size. The size of the bank matters; a large bank will obviously have a greater share in both these numbers. With regard to the fintech small finance bank issue, Deputy Governor Rajeshwar Rao can reply.

No, thereafter it can be deposited or exchanged in the Reserve Bank issue offices, which are there in almost every state capital. We have 19 of them. So it can be exchanged or deposited in the Reserve Bank issue offices. There is also the facility of sending these 2,000 notes through the postal department to the Reserve Bank, because if you are away from the state headquarters and cannot travel, you can send it. So the facility continues with the Reserve Bank. Bulk of it, as you have seen, has come back, so it has largely met our original objective of withdrawal of 2,000 rupee notes. The process now is with the banks till tomorrow, and thereafter with the issue offices. Do you want to add anything?

With regard to household savings, there are several nuances. I would request Deputy Governor Michael Patra to take that question. With regard to the other part of your question – you said the rupee – let me reiterate what we have been saying: we don't have any specific level of the exchange rate. Our objective in market intervention is to prevent excessive volatility and to see that there is orderly appreciation or orderly depreciation. We don't have any specific level. It's not a question of defending a particular level of rupee, nothing like that. That policy of the Reserve Bank is a time-tested, established policy which we are adhering to. You can take the other part.

I think you take that question. No, the MPC has said that they are focused on aligning the inflation outcomes with the target. So a tendency of the inflation numbers to move towards 4% is what we are looking for. If it goes below 4% on a durable basis, then we will shift to accommodation. We are trying to keep inflation at the target or around it. That is why we have used the word 'align' the inflation to the 4% target. Again, if there is a sudden spike or a sudden fall, we have to see how durable that decline is. Only when we are convinced that there is durability in the inflation being at 4% or below 4% on a durable basis that may call for a rethink, but not at the moment. No, I cannot tell you the specific point if it reaches 4.25 or 4.26. It's not possible to say that. On a durable basis, if we see inflation around 4% – hold on, hold on – on a durable basis, people have asked this question about withdrawal of accommodation, neutral, and all that. The question of neutrality will arise only when you see inflation at around 4% on a durable basis. Neutral would mean you can act in both directions. And when it goes below 4% again on a sustainable basis, when we are convinced that it has come below 4% and is likely to be sustained at that level, then that could be a ground for rethink. I'm saying ground for rethink, not that we will cut 12 months down the road, because let us also accept that there have been multiple and overlapping shocks and the global scenario also remains highly uncertain. Last week crude prices were 90-95 and everyone expected that, but now it has come down. Food price shocks – there are big surprises from food price shocks, weather events. Given that kind of highly uncertain environment, it will not be desirable for the central bank to say that I will do this at a particular time because it will unnecessarily confuse the market and it may not actually play out that way because of the uncertainties involved.

In the monetary policy report we have given our current expectations, our current projections. We see the situation playing out as given in the MPR. For this year, we have given it in my statement and in the MPC's resolution. For next year, it is there in the MPR. So that is how we expect it to play out. But there can be uncertainties on both sides. We have seen it in the past when suddenly certain prices, especially vegetables, have suddenly crashed – nobody expected it at that time. So there are uncertainties and such uncertainties can work both ways. Given that uncertainty, at the moment our position is that the path we have given in the MPR we expect it to play out accordingly. You also spoke about core inflation declining. Is there a number you have in mind to which core inflation should further go down for inflation expectations to be anchored around the 4% target? No, our target is headline inflation.

You see, first thing is that we have not increased the rates. Second thing is that our focus is to bring down inflation. So when we control inflation, when we bring down inflation, we are actually increasing the purchasing power in the hands of the people. Third point, when we make policy we are very sensitive to 1.4 billion people in the country. Monetary policy is not just for some segments of the financial market. We are very, very sensitive and mindful of the requirements of 140 crore people who are in this country. A mention was made about RBI supporting growth when it was required. Even now the growth continues to be resilient. So our policy is not just for the financial markets alone. Our policy is for 1.4 billion people. And I have explained how it is likely to benefit – when inflation comes down, naturally the common man benefits the most. So that is how I would like to put it. And there was one more question? Yes, please.

Deputy Governor Swami Natan can take that question.