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Business News/ Market / Mark-to-market/  Ten key points Raghuram Rajan made at RBI policy meeting
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Ten key points Raghuram Rajan made at RBI policy meeting

Here are the 10 most important things that Rajan said in the RBI policy meeting

In his interaction with the media, governor Raghuram Rajan listed the uncertainties facing the economy, his expectation from banks and regulatory announcements that could be expected. Photo: Abhijit Bhatlekar/MintPremium
In his interaction with the media, governor Raghuram Rajan listed the uncertainties facing the economy, his expectation from banks and regulatory announcements that could be expected. Photo: Abhijit Bhatlekar/Mint

Mumbai: The Reserve Bank of India (RBI) on Tuesday announced a 25 basis point (bps) or quarter percentage cut in repo rate, bringing it down to 7.25%. Repo rate is the rate at which RBI lends to commercial banks.

In his interaction with the media, governor Raghuram Rajan listed the uncertainties facing the economy, his expectation from banks and regulatory announcements that could be expected.

Here are the 10 most important things that Rajan said.

1. The rate cut decision was apt, keeping in mind the status of the economy, inflation and the need to support growth. While a future cut will depend on how economic data will evolve, banks must pass on the benefit of the three rate cuts (in 2015) to their borrowers.

2. Considering the new series for calculation of gross domestic product (GDP) growth, the growth potential in India is at about 8-8.5%. India’s current growth rate of 7-7.5% is actually lower than potential; so there is a need to improve investments and curb supply side problems.

3. The biggest uncertainty for the Indian economy is a weak monsoon. Others include rising oil prices and a slow recovery in the economy as reflected in the weak corporate earnings.

4. There is a need for a quick clean-up of banks’ stressed assets and the RBI is moving towards it by restructuring the whole process of managing bad loans. The regulator is insisting on banks to provide for bad loans right away as late provisions may result in larger losses later.

5. The government is taking steps in the right direction on reviving stalled projects; however, the results would take time to show. The RBI will ensure that credit flows to these projects once all the roadblocks are cleared.

6. To fight global volatility, the first line of defence is good policy, which is what the RBI and the government is working for. The second line of defence will be a strong foreign exchange reserve, which India already has.

7. The RBI will participate in currency market only to bring down volatility and will allow the market to decide on foreign exchange rate.

8. The RBI may announce at least one set of new bank licences—either small banks or payments banks—by August end.

9. The central bank is working on revising the base rate structure to reflect the marginal cost of funds. The ideal step will be to migrate to a system connected to a market-linked rate, in the medium term.

10. The banking regulator is also assessing market regulations to see where there is scope for further liberalisation. The RBI is scrutinising all of its guidelines to bring up a list of simplified master circulars.

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Published: 02 Jun 2015, 02:24 PM IST
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