RBI’s Responsibilities ‘Much Wider’ Than U.S. Fed, BOE: Governor Shaktikanta Das

“Currently if you ask, while all departments are important, the main focus of RBI is maintaining financial stability, supporting growth, maintaining price stability—which is the mandate given to us under the RBI Act—and also to focus on sharpening our regulation and supervisory functions,” Das said in an exclusive interview with BloombergQuint.

India’s financial institutions are recovering from issues around bad loans, bank frauds, and a slowdown in credit offtake. Just today, the Narendra Modi government approved a plan for the State Bank of India-led consortium to purchase a stake in the capital-starved Yes Bank Ltd., Bloomberg reported. On the other hand, the RBI is also set to regulate cooperative banks to avoid a Punjab and Maharashtra Cooperative Bank-like crisis.

The RBI, a full service central bank since inception, adopted a flexible inflation targeting regime in 2015. Since then, the mandate of inflation control moved to the six-member monetary policy committee. In recent months, the signals from the MPC and the RBI have diverged due to multiple concerns in the economy. While the MPC remained focused on inflation control, the RBI stepped in with measures that appeared to be targeted at bringing down rates without an actual rate cut.

Is there a divergence? Das says no.

“There is no dichotomy between the RBI’s thinking and the MPC’s thinking. As per the law, growth is also to be kept in mind while maintaining price stability,” Das said, explaining that the driving force behind its recent measures has been the objectives of better transition of rate cuts and improved credit flow from banks. “It was not for any yield management or anything, it was to ensure that whatever reduction we have done in the repo rate over the last one year, that translates into the corporate bond market segment,” he said.

And the central bank has succeeded in that to a large extent, Das said.

Das, however, said the MPC has a narrow mandate of inflation control with a single tool, which is the repo rate. “The MPC has a defined role, within that defined role, the MPC is supreme,” Das reiterated.

The RBI, in all of 2019, reduced the repo rate by 135 basis points. In the last few bi-monthly policies, it has supported these rate cuts with a lower cash credit ratio for banks, and three rounds of long-term repo operations for banks. Another round is due on March 9.

Tightening The Regulatory Grip

Das took over as governor of the central bank after his predecessor Urjit Patel quit amid tensions with the government. Also, the banking system was facing a bad loan problem and troubles cropped up at NBFCs and some private lenders.

The RBI is focusing on improving its supervision and also laying greater emphasis on governance, he said. “As a regulator we try to create an ecosystem within the regulated entity which ensures that frauds are prevented,” Das said, adding the bank is “not sitting there morning to evening monitoring each and every activity and operation.”

“When it comes to our notice, first question we ask the management why they miss out because it is up to them to check it. After that we try to improve on that and learn from that experience and give additional safeguard,” he said.

On RBI’s Image

Speaking about the confidence the institution inspires, Das said the the RBI hasn’t lost its “pristine image” and instead has responded to each and every challenge presented.

“There are always challenges. Bank failures happen every month or every week in the United States. In India, it has never happened. A major bank has never been allowed to collapse,” he said. “Even today, RBI as an institution enjoys a tremendous amount of trust and public confidence.”