Key takeaways from the RBI’s monetary policy committee conference

Review of RBI’s contingency buffer requirement

The Bimal Jalan Committee has given 5.5-6.5% ratio of the balance sheet to be maintained as a buffer. We are at 6.5% as of 31 March, 2024. The overall framework is being reviewed and if the committee feels that there is any change, basis that we will take a decision.

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DG Rao: The Bimal Jalan Committee recommendations were for the period from 31 March 2019 till 30 June 2024. We are reviewing the whole thing internally and seeing whether any changes are warranted. Then if we need to engage with the government or the board, we will do it at a later point in time. The entire economic capital framework is being reviewed.

Deferring LCR norms

It is not only about stability, the implementation of LCR norms comes with a cost. We will be very conscious of the costs that it brings in so that we make efficient use of our resources.

I do not think 31 March, 2025 is giving sufficient time, so certainly they will not be implemented at least before 31 March, 2026. That's the kind of timeline needed at the minimum. We have got comments on the draft regulations and we are examining them, which will take time.

We had primarily proposed this so that there is no run on the banks. In 2023, there was run on some US banks because they do not have such regulations. We have those regulations, but whether the liquidity and provisions we have are sufficient or need to be improved, is why we had proposed for certain more liquidity to be kept vis-a-vis some of the deposits which would perhaps have a higher runoff.

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At the same time, we have got comments from other stakeholders that there may be lower liquidity requirements for some of the other deposits, we are examining that also. As soon as we examine all the suggestions and do the impact analysis, we will revise our estimates and give the time frame for LCR to be implemented. Less than two months is too short a window for the banks, so we will give at least till 31 March, 2026. We’ll aspire for that, but we want to make it very smooth and so the implementation will be phased.

Deferring expected credit loss, project finance norms

Expected credit loss (ECL) guidelines was only a discussion paper, even the draft is not out so there is no time frame for implementation. Similarly, for project finance, banks will need more time, so 31 March, 2026 is the earliest. We do not want to cause any disruption and will ensure a smooth transition.

Moreover, they need to be seen in conjunction with each other, there is a certain amount of overlap between ECL and project finance. So we are examining the feedback and we'll come out with something which balances the interests of the public, the depositors and financial stability, and at the same time keeping in mind the concerns of banks and efficient use of resources.

Global uncertainties a bigger worry than rupee depreciation

Rupee depreciation was certainly factored in while deciding on the rate cut and the stance we are maintaining. While it puts pressure on inflation, a higher worry for us would be as to how global uncertainties pan out. Even if the tariff wars were not to carry out, just the uncertainty in itself is something which is worrisome, because that has a direct impact on growth, and on investment and consumption expenditure decisions, which get deferred. And a lot of the appreciation of the dollar and the depreciation of the rupee is actually linked to this uncertainty, which is not good for growth and imported inflation. That is something we all need to be cognizant about.

Consumption impact from budget announcements on inflation

The budget was analyzed and accounted for in deciding about the repo rate cut. Agriculture has been given prime focus. About 46% of the CPI (Consumer Price Index) basket is comprised of food, so this focus will help not only on growth but also in controlling inflation in the medium-to-long term.

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A programme on vegetables and fruits was announced. Vegetables has a 6% contribution in the CPI and fruits a 2.9%, totalling to 8.9%. I think inflation pertaining to fruits and vegetables would certainly have gone or played into their minds. Similarly, a mission on pulses—which have a weight of 2.4-2.5% in the CPI and has played a major role in the inflation seen in recent months—has been announced, in addition to the number of other programs for agriculture.

The ₹1 trillion tax relief announced in the budget was desired by everyone. I don't think this is going to have an upward impact on inflation. We have sufficient productive capacity, today capacity utilization levels are 75% and with this tax relief will only help our growth and not have any major impact on inflation.

US president Donald Trump’s pro-crypto stance

DG Sankar: RBI’s thinking on cryptocurrencies has been articulated very clearly and there is no change because it is based on our understanding of what crypto is and that will not change because some policy has been taken by some country. Our stance remains unchanged. Having said that, there is a group which is looking at what the country's approach to cryptocurrencies will be and will give its recommendations. Based on those, decisions will be taken by the government and we'll all follow that.