Shaktikanta Das Briefing Updates: Working Group’s Report On Banks Should Not Be Taken As RBI’s View: Das

• Over the last two years have strengthened and deepened our supervisory systems and mechanisms
• The incidents of two banks where we had to intervene did not happen overnight
• Our first effort is to always work with the management and resolve the situation
• Only when this fails, we intervene in the best interest of depositors
• Whether it is a monetary penalty or supervisory action which has to be taken will be decided on case-to-case basis
• HDFC Bank has had previous issues as well
• We had concerns about certain deficiencies and we felt it was required that the bank strengthen its IT infrastructure before launching new products
• We are sure that HDFC Bank will comply with our directions
• Cannot be putting thousands of customers through disruption for hours together
• Public confidence in digital banking needs to be maintained
• There is a need for all banks, NBFCs and financial entities to invest more in their IT and technology
• They must also strengthen all their systems so that public confidence is maintained
• The entire landscape is going to become more IT-dependent so there is a need for more investments

• Our FX strategy is to prevent undue volatility and see that there is orderly evolution of the exchange rate
• Our assessment is that all the liquidity that has been injected by the RBI has achieved its objective
• Getting steady FDI and FPI inflows
• Constantly monitoring the situation and will take action at the appropriate times

• The RBI wants the NBFCs to remain robust and continue to fulfill its role of reaching last mile lending
• This is why the RBI is looking to strengthen governance structure and capital base for NBFC sector
• We are looking to bring in nuanced, scale-based regulation as the NBFC sector has companies of varying sizes

• The MPC expects inflation to soften over the next two months
• If supply side management is timely and effective, we will see inflation trajectory completely changing
• Supply side management is the prime instrument to use at this juncture.

• Inflation targetting has not been junked and is uppermost in our agenda
• We give it highest priority in our monetary policy decision making
• Our expectations on inflation have not materialised
• We are dealing with an extraordinary situation

• It is a report by an internal working group of RBI, it should not be seen s RBI's point of view or decision
• The internal working group has acted independently of the RBI and have given a certain point of view
• RBI has not taken any decision on the matter so far
• Our approach is consultative, after getting comments from various stakeholders we will consider the matter and take a decision

• It is the paramount responsibility of the RBI to protect depositors
• All our actions (in Lakshmi Vilas Bank and Yes Bank) are within the purview of the law.
• Do not want to comment any further as both matters are sub judice
• Have made internal assessments on the NPA scenario
• Financial stability report is due in the last week of December
• Once the Supreme Court hearing is complete and we have completed our assessment, we will put forth our views on the NPA scenario
• As compared to our previous assessment, the economy has recovered faster than expected.

• Expect liquidity to be comfortable for the market
• Rates are below the reverse repo rate because collateralised rates are usually below uncollateralised rates
• There is an asymmetrical distribution of liquidity
• Our hopes and endeavour is that banks will intermediate and even out rates
• We do not have any intention to intervene

• There is a window available for checking the inflation momentum
• Winter months with vegetable arrivals and bumper kharif crops would help
• Have seen some action in recent weeks with reduction in import duties for edible oils
• We are continuously watchful and take a call when we move ahead

“The growth impulses that have emerged augur well for the revitalisation of the India economy. Policy stimuli by the government and RBI are intended to nurture these growth sprouts to greater strength. Efforts are underway to ensure a calibrated unlocking of the economy with cognizance and caution about the virus. While we remain vigilant, we must now turn to alleviating the scars left by the pandemic and revive the economy.

The horizon has lighted up with a spate of positive news around vaccines and steady rise in recoveries. India's time has come to break free of the fetters of Covid-19 and reconfigure our destiny. We have born with fortitude and courage, the terrible havoc wrought by the pandemic.”

• Propose to issue RBI digital payment security control directions for regulated entities
• The directions will require robust governance, security controls for all digital payment networks
• Draft guidelines will be issued shortly
• Comprehensive framework for enhanced disclosure of customer complaints, monetary compensation for any delayed redressal to be put in place
• To intensely review grievance redressal framework of regulated entities

Commercial and cooperative banks to not make any dividend payout pertaining to FY20, the governor said.

• Current regulatory regime for NBFC sector warrants a review
• Scale based regulations keeping in mind the risk profile of NBFCs is needed
• A discussion paper will be released by Jan. 15

• Comprehensive guidelines for derivatives have been reviewed and a revised draft will be issued today
• Comprehensive draft guidelines for bond market instruments will be issued today
• These guidelines will go a long way in developing corporate bond market and derivatives market in India

• Positive impulses are clouded by rise in infections in some parts of the country
• Recovery rate has crossed 94%, with positive developments on vaccine developments
• Corporate results indicate that demand conditions are recovering and profit numbers are rising
• Recovery in rural demand is expected to strengthen further while urban demand further gaining momentum

• CPI inflation estimated at 6.8% in Q3FY21.
• CPI inflation seen at 5.8% for Q4FY21, and 5.2-4.6% in H1FY22

Have been able to swiftly resolve situations at two scheduled commercial banks, says RBI governor.

• Kept financial stability and depositors’ interest as uppermost priorities
• Remain strongly committed to preserving stability of financial sector, will do whatever is necessary

• Overall bond market conditions have evolved in an orderly manner
• Debt management operations, monetary operations and market expectations are in harmony
• Take this opportunity to commend market participants for responsible behaviour

• Continue to respond to global spillovers
• Various instruments will be used at appropriate times while ensuring ample liquidity is available to the system

• MPC will monitor all threats to policy stability
• 2020 has been extremely challenging
• Near term financial stability risks have been contained
• Bond issuances have strengthened for those with strong credit ratings
• Overall endeavour is that output and employment losses get quickly recoupe

Inflation likely to remain elevated with some relief in the winter months, says RBI Governor Shaktikanta Das. The inflation spiral is being fueled by supply chain disruptions, excessive margins and indirect taxes, he added.

• Small window is available for pro-active supply management to break inflation spiral
• Further efforts are necessary to mitigate supply-side driven inflation pressures

The Monetary Policy Committee once again left the repo rate unchanged at 4% while maintain an accommodative stance, “as long as necessary, at least through the current financial year and next year”, Governor Shaktikanta Das said.

The reverse repo rate also remained unchanged at 3.35%.

• MPC Take 2: New Committee, Old Problems
• Vegetable Prices May Remain Unpalatably High For India’s MPC
• MPC Meet: Monetary Policy And The Art Of Guidance

India’s Monetary Policy Committee, headed by Reserve Bank of India Governor Shaktikanta Das, is set to announce its bi-monthly policy today, at a time the country is in a technical recession and is facing inflationary pressures.

Das will read the announcement at 10:00 a.m., followed by a press conference at 12:00 p.m. The committee, which cut rates by 115 basis points since the Covid-19 crisis hit in March, has kept rates on hold since May. A Bloomberg poll of 29 economists showed that all expect a status quo on the repo rate.

CPI inflation was projected at 6.8% for the July-September quarter and was expected to range between 5.4% and 4.5% in the year’s second half. Price pressures, however, have not receded as quickly as anticipated. CPI inflation rose to a six-year high of 7.6% in October compared with 7.3% in September. It has remained above the MPC’s target for seven straight months.

At the same time, the Indian economy contracted 7.5% in the July-September 2020 quarter after a contraction of 23.9% in the April-June quarter. While better than estimated, the latest reading reaffirmed that India is amid a technical recession.