No risk of crisis due to bad loans: RBI Guv

Reserve Bank Governor Raghuram Rajan today said Indian banking system does not face any risk of a crisis due to bad loans as NPAs are primarily in public sector banks and they are supported by the government.
"I don't think there's any risk of a crisis from the bad loans in the system. And there is a reason for it, which is bad loans are primarily in the public sector system, which means that the full faith and credit of the government is behind that," Rajan said in a TV interview today.
He said bad loans or non-performing Assets (NPAs) are thus not going to take down banks.

Gross non performing assets (NPAs) of public sector banks stood at over Rs 2.43 lakh crore as of September-end, 2014. Top 30 NPAs account for Rs 87,368 crore, 35.9 per cent of total gross NPAs of public sector banks (PSBs).
There are 27 public sector banks, including five associates of State Bank of India.
Among other things, Rajan said, RBI is focusing on keeping inflation under control, while government role is of fiscal consolidation.

"Historically problem has been that expansionary fiscal policies have an effect on inflation in India and so I have to worry about that. Let me emphasise, the package has to be such that it gives us comfort that inflation will not be enhanced by the fiscal. And that means a fiscal consolidation path."

If the fiscal consolidation path cuts back on revenue spending and re-allocates that to capital expenditure it will help contain inflation, he added.
Rajan also said the RBI may go for more rate cuts if the data surprises, adding RBI will, however, have to relook if data disappoints.
It may be noted that there is now a new method for calculating consumer price inflation. GDP growth will also calculated with a new base year. Advanced estimates for current year growth rate will be out on February 9.
"We are watching that. The most important budget document is also on the anvil. We need to look at all the aspects of the budget documents as well, as these are all inputs for inflation rate.