RBI to build on strong base

The Reserve Bank of India (RBI), along with the Ministry of Finance, have taken various steps during FY15 that helped set up a strong base for the economy, and I expect RBI will be focused on building on the good work of the past year. We have come a long way from the days when the currency markets, money markets and equity markets were in a state of turmoil. The policy action has provided much needed stimulus and stability to the markets. The goal is to improve the ease of doing business in the country, promote manufacturing, and build a climate that propels growth, in addition to stimulating activation in the numerous financial inclusion clients who have come into the banking system.

Many efforts have been taken to enhance the operating platform during FY15 in the areas of non-performing assets (NPAs), credit costs, composition of boards and corporate governance, which made it a landmark year from the perspective of regulatory/ financial changes. While it ensured that restructuring did not help push NPAs under the carpet, it also ensured bona fide corporates that faced genuine business difficulties did not have to suffer and were not starved of funds.

The expectations from the monetary policy are around actions that will stimulate growth, increase liquidity, and help build new sources of financing. RBI is likely to intervene and take action for moderating the policy rate, improving liquidity in the markets and introducing new instruments that promote funding to corporates. On the liquidity front, I expect RBI to reduce the minimum requirement of maintaining cash reserve ratio (CRR) on a daily basis from 95 per cent to 85 per cent or thereabouts. And, in order to give a fillip to the infrastructure space, I expect RBI to classify select infrastructure segments as priority sector.

While all these measures may happen, the timing of a rate cut decision would be data dependant and RBI may choose to wait for meteorological guidance on the progress of monsoon, as that would have a bearing on the inflation trajectory, though our own preference would be for a front-ended deeper rate cut early in the financial year.

The author is managing director at Federal Bank. The views expressed are personal