Growth is picking up, says Raghuram Rajan

'We see some signs of capital investment picking up, and there is a continuing need which the government is trying to address'

Reserve Bank of India (RBI) Governor Raghuram Rajan has said growth is recovering and investment picking up. He, however, stayed guarded on inflation expectations.

“We talked about the state of the economy, which I would characterise as recovering, that we see some signs of capital investment picking up, and there is a continuing need that the government is trying to address, of putting some of the stalled projects back on track. We also see some signs of capital investment, which is good,” Rajan said on Thursday, after the central bank’s board meeting here.

In January, RBI had reduced its prime lending rate by 75 basis points to boost growth.

Rajan declined to share his thoughts on inflation, saying RBI’s stance would be data-dependent. “The monsoon thus far, as the number suggests, has been significantly above normal and there are varied predictions about how it looks, going forward,” he said. He also noted divergent views by different agencies regarding the prospects.

“Exports are an area of relative weakness but they have been weak across various Asian economies, with the exception perhaps of China, and clearly the weak state of economy globally is a big factor there,” the governor said.

He also allayed worry on contagion of the Greek debt crisis. “India’s direct exposure to Greece is very limited; the exposure is only via exchange rates. Greece is an evolving situation. Untoward developments (there) could lead to risk-off trade,” he said. “There is the indirect exposure in the sense of what Greece will do to the exchange rates or whether the euro will react to any Greece issue or how any untoward developments in Greece could lead to the risk of sentiment among global investors.”

He said India had adequate foreign exchange reserves to buffer volatility in capital flows.

After taking charge of the central bank amid a currency crisis in September 2013, Rajan has taken several steps to attract foreign inflows. Forex reserves are at an all-time high, swelling by $75 billion in 19 months.

Rajan said the issue of banks' asset quality and bad loans was an ongoing one. RBI was working with banks to ensure they recognised problems related to non-performing assets early. He also cautioned banks against misuse the '5/25' rule by resorting to evergreening of loans. The 5/25 principle allows banks to refinance a loan every five years for 25 years. The move is aimed at spreading risks for long-gestation projects and addressing asset-liability mismatches.

RBI for account aggregator NBFC

The Reserve Bank of India (RBI) has decided to push the idea of a new kind of non-banking financial company (NBFC), which would allow account aggregation and be regulated as an account-aggregator NBFC. “This will allow the common man to basically see all his accounts across various insurance companies, pension funds, as well as banks, in a common format and plans are underway for that,” RBI Governor Raghuram Rajan said in Chennai. Earlier, the government had proposed to set up a facility through which every individual could see all his accounts across insurance companies, pension funds and others, he said.

‘More FII investment needed in G-secs’

The central bank on Thursday said it was committed to increasing the foreign investment ceiling in government bonds, though it would be mindful of not over-relying on such investments. “We are committed to a steady expansion in the absolute value of FII (foreign institutional investor) participation, while ensuring we don’t go overboard and become overly reliant on FIIs for financing in government bond markets or corporate bond markets,” Reserve Bank of India Governor Raghuram Rajan said at a news briefing after a board meeting of the central bank.