'Going ahead, NPAs will be a problem'
The following are excerpts from the RBI Governor’s press conference on the third quarter monetary policy review:
On inflation and rate cut:
Yes, inflation is coming down and it will come down further. It is a concern that it is coming down so fast. We expect the Wholesale Price Index (WPI) to go down to below 3 per cent by March. We don’t have a projection for the Consumer Price Index (CPI). The stance in the past few months have been to shift from inflation to growth and that remains the stance. We should not get the impression that we have conquered inflation. At this time, I am unable to say whether we will bring down the rates to a certain level.
On negative WPI possibility:
There is a possibility that there will be negative WPI. Whether it will be long, I do not know, but at this point of time that does not look like a possibility. We are not, I believe, getting into structural deflation unlike advanced economies.
On fears of excess liquidity:
Maintaining adequate and comfortable liquidity is important. So, we are deliberately and consciously maintaining more than the required liquidity.
On the rise in bond holdings:
Up to October 2008, there was a decline in the Statutory Liquidity Ratio (SLR) holding. After that the ratio of SLR holding has gone up. That is because of the dynamics of the financial sector and banks have found it appropriate to invest in G-secs. But we are hoping that they will lower their G-secs to the mandated level and lend the money to productive sectors.
On the rise in NPAs:
Historically, NPAs increase in a downturn. Because this is a global downturn, of which we are a part, I believe that NPAs are going to be a problem going forward and we are conscious of that. We have told banks that we need to look at NPAs and all I can say is that we will keep our eyes and minds open.
On banks not lending:
Banks have some concerns about lending, partly because their average cost of money is high and partly because they can’t bring down their deposit rates abruptly. There is also some concern about the asset quality or credit quality at a time of downturn.
On restructuring of realty, NBFC loans:
In a slowdown, there is usually deleveraging, which can reinforce the downturn. Hence, even internationally, it is recognised that in good time you build up the capital and in bad times you use up that capital. That’s precisely what we have done.
In November 2008, it became quite clear that the slowdown in the real-estate sector due to knock-on effects of the global developments would have consequences for the financial sector. So, we have again adjusted the risk weightages and provisioning norms back in alignment with everything else.
On home loan rates:
As far as provisioning norms and risk weights are concerned, we have already done what we thought were appropriate. We have brought loans below Rs 20 lakh under priority sector. If we have not done anything On Tuesday, it means that there is nothing appropriate that needs to be done.