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RBI's priority is cleaning up banks, says Viral Acharya

RBI deputy governor said that demonetisation had led to a change in the way Indians saved

Arup Roychoudhury  |  New Delhi 

Viral Acharya, deputy governor, RBI
Viral Acharya, deputy governor, RBI

The cleaning up of banks’ books was the Reserve Bank of India’s (RBI’s)  priority, Viral Acharya, the bank’s deputy governor, said on Saturday.

Asked if cleaning up non-performing assets of took precedence over cutting interest rates for the RBI, Acharya replied, “That is our number one priority.” He was speaking on the sidelines of the Delhi Economics Conclave. 

According to the minutes of June meeting of the Committee, Acharya maintained tolerance for a slightly higher rate of interest was justified to ensure that “do not find relatively low the hurdle rate for evergreening (perennial extension) of bad loans”.

“What is required for to do its job better is to address the stress on bank (and highly indebted borrower) balance sheets,” Acharya had said. The had held interest rates in that meeting, drawing criticism from the government.

Speaking at the conclave earlier, Acharya said had led to a change in the way Indians saved. “Saving seems to have had a pretty non-linear shift since November and December. The flows that are going into mutual funds, structured investment programmes as a form of savings... if you look at insurance premium collections over seven or eight months, these are all massively on the rise,” Acharya said.

Speaking in the session, Professor Kenneth Rogoff said India’s held lessons on how not to carry out such an exercise. He said the time taken to withdraw high-denomination bills from circulation should be five-seven years. “India did this almost overnight,” he added.

“It takes six months to one year to print a new currency supply due to technical difficulties in producing counterfeit-resistant currency. India’s biggest problem was that it did not have nearly enough new notes on hand to exchange the old notes,” he pointed out.

Rogoff also said India should maintain a 4-5 per cent consumer-price target. Headline retail hit a record low of 1.54 per cent in June.

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