Category: Speeches

I wish to thank the President and other office bearers of the All India Management Association (AIMA) for having invited me to participate in this convention. This is a national management convention and it is apt that the AIMA is organising it. In normal times and even more in times of severe stress, it is the quality and capacity of management that makes the critical difference and enables businesses to not only survive but come out stronger. I am happy to note that the AIMA is advancing the cause of management profession by collaborating with industry, government, academia and students.

2. The theme of this convention, “Beyond Recovery: New Rules of the Game” is well timed. After an eighteen-month long battle, there are signs – and I repeat signs – that the world is emerging from the shadow of coronavirus. As we emerge from the present crisis and look beyond, this is the right time to step back a little and plan for an economy which is stronger, more inclusive and sustainable. I propose to highlight the contours of such an economy in my remarks today.

Envisioning Life Beyond COVID-19

3. COVID-19 is a watershed event of our era. It has caused widespread devastation of life and livelihood and it is still haunting the global economy in several ways. There are very few parallels of a shock like COVID-19 in history which left policymakers with no template to navigate through the crisis. Both health systems and human endeavour to deal with the crisis were stretched to the limit. The pandemic is likely to leave indelible mark on the way economies and societies function. When we emerge from the crisis it would most likely be a new dawn, a new normal.

4. The pandemic has induced several structural changes which have significantly altered the way we work, live and organize businesses. With greater shift to work from home, technology has gained potential to boost productivity, by saving on travel time, boosting sales on online platforms and accelerating the pace of automation. As a result, consumption pattern is changing and companies are resetting their supply chains both globally as well as locally. These changes will have wider ramifications for the economy.

5. Global supply chain is undergoing significant shifts; companies and various authorities have to be nimble enough to capitalise on these opportunities. Automation and robotics will threaten low-skilled workers and those in the contact intensive sectors. The shift to online have also created new opportunities and challenges for employment-intensive sectors like travel, hotels, restaurants and recreation. Some of these changes are going to stay beyond the pandemic. These structural changes need to be kept in mind while formulating strategies for participative growth process.

6. At another level, the pandemic has affected the poor and vulnerable more, especially in emerging and developing economies. Daily wage earners, service and informal sector workers were badly hit. Their employment and income opportunities were curtailed. The lasting damage inflicted by the pandemic on these segments is of serious concern for inclusive growth. In the medium to long-run, both efficiency and equity will greatly matter for sustainable growth and macroeconomic performance.

7. Technology adoption which was earlier limited to core sectors has now permeated to several other areas, viz. education, health, entertainment, retail trade and offices. The pandemic has also caused disruptions and induced reallocation of labour and capital within and across sectors. The firms which were quick to adopt technology and were flexible in working from off-site are attracting more capital and labour. On the other hand, firms which were not up for the challenge and competition will have to leave the space for the more dynamic ones. These forces of ‘creative destruction’ are expected to boost productivity by encouraging greater competition, dynamism and innovation in several sectors of the economy.

The Indian Scenario

8. Let me now turn to the Indian scenario. In the post-pandemic world, India’s prospects are underpinned by several dynamic sectors. I wish to briefly touch upon some of them.

9. First, information technology (IT) services and information technology-enabled services (ITES) backed by entrepreneurial capabilities and innovative solutions have emerged as key strength of the Indian economy over the years. There is a growing league of Unicorns in India reflecting its potential for technology-led growth. The country has added several unicorns over the last year to become the third largest start up ecosystem in the world. Underpenetrated Indian markets and large IT talent pool provide an unprecedented growth opportunity for new age firms. Further, the COVID pandemic has provided a new impetus to technology-driven companies such as fintech, edtech and healthtech which are likely to see increased funding activity in the coming years.

10. Second, India’s digital momentum is expected to continue with a strong demand in areas such as cloud computing, customer troubleshooting, data analytics, work place transformation, supply chain automation, 5G modernisation and cyber security capabilities. India has the natural advantage to benefit from the emerging trends in these areas. The drive towards full fiberisation of the economy has to go hand in hand with the establishment of data centres across the nation for data storage and processing. Ensuring universal, affordable and fast broadband internet access all through the country can play a critical role in advancing productivity and employment opportunities. Further, the stronger push to digitalisation and automation can have spillover effects on ease of doing business. Medical advances and process accelerations can spark a renaissance in public health innovations and delivery. E-commerce is emerging as another promising sector for India. It has benefited from growing market, increased internet and smartphone penetration and COVID-induced shifts in consumer preferences. Various initiatives taken by the government, namely Digital India, Make in India, Start-up India, Skill India and Innovation Fund have created a conducive eco-system for faster growth in the digital sector.

11. Third, the pandemic has brought to focus what India can achieve in the area of manufacturing. In the pharmaceutical sector for the first time in history, vaccines were developed and administered within a year with India remaining a forerunner and a global leader in vaccine manufacturing. Investors have shown confidence in the Production Linked Incentive (PLI) scheme introduced by the government. Following this initiative, India is now home to almost all the leading global mobile phone manufacturers and during the recent period, India has turned from being an importer to an exporter of mobile phones. This trend is likely to spill over to other sectors also. The presence of global players would help in enhancing India’s share in Global Value Chain (GVC) and building up a resilient supply chain network. Greater GVC participation would also enhance the competitiveness of India’s large and Micro, Small and Medium Enterprise (MSME) supplier base.

12. Fourth, the global push towards green technology, though disruptive, can create new opportunities in several sectors. For example, the automobile sector is moving towards electric vehicles. With greater innovation, electric vehicles are slowly converging to internal combustion engines (ICE) in cost and performance. The biggest Electric Vehicle car maker is not from the traditional car maker companies. Similar creative disruption is also visible in the two-wheelers space. With supportive policies, greener technologies can yield economic and environmental benefits.

13. Fifth, India’s energy sector is also witnessing significant churning and technological transformation. As India grows rapidly, its energy demand is expected to pick up in the near future. Currently, a large part of the energy demand is met from fossil fuels, with significant import dependence. India aims to increase the share of non-fossil fuels to 40 per cent (450GW) of total electricity generation capacity by 2030, as part of the goals set under the Paris agreement within the United Nations Framework Convention on Climate Change (UNFCCC).¹ With a view to give a boost to the agriculture sector and to reduce environmental pollution, the Government had launched the Ethanol Blended Petrol (EBP) Programme, which would help in cleaner air besides saving on fuel imports. The percentage of ethanol blending by Oil Marketing Companies has risen from 1.5 per cent in 2013-14 to 5.0 per cent in 2019-20 and is further expected to rise to 8.5 per cent in 2021-22, on course to achieve 20 per cent target by 2025.² The drive towards renewable energy is a step in the right direction both for energy security as well as environmental sustainability, which are critical for our long-term economic growth.

14. Sixth, in the post-pandemic period, global trade will remain vital for faster recovery. Reflecting congenial policy environment and supportive external demand, India’s exports have rebounded, with a broad-based double-digit growth during the first half of 2021-22. India’s exports of agricultural commodities, including Geographical Indications (GI) certified products to newer destinations, offer favourable prospects for overall export. Furthermore, exports of engineering goods – which account for around one-fourth of India’s total exports – experienced robust growth across product categories and newer markets. To further strengthen the export potential, there is a need to enhance the share of high-tech engineering exports to achieve an ambitious engineering export target of US$ 200 billion by 2030³.

15. To achieve our objectives in all the areas which I have outlined so far, we need a big push to infrastructure particularly in areas of health, education, low carbon and digital economy in addition to transport and communication. In addition, the warehousing and supply-chain infrastructure will be critical to bolster value addition and productivity in the agriculture and horticulture sector. This will create employment opportunities in semi-urban and rural areas and promote inclusive growth. The demand for warehousing infrastructure has also gone up in tier-2 and tier-3 cities in the wake of steep jump in online trading. Moreover, investment in intangible capital such as research and development and skill upgradation of human resource has strong and positive impact on productivity. Some empirical evidence suggests that the impact of investment in intangible capital on labour productivity is more than investment in tangible capital.⁴

16. Seventh, a dynamic and resilient financial system is at the root of a stronger economy. India’s financial system has transformed rapidly to support the growing needs of the economy. While banks have been the primary channels of credit in the economy, recent trends suggest increasing role of non-bank funding channels. Assets of non-bank financial intermediaries like NBFCs and mutual funds have been growing; funding through market instruments like corporate bonds has also been increasing. This is a sign of a steadily maturing financial system – moving from a bank-dominated financial system to a hybrid one. Substantial progress has been made to fortify internal defence mechanism of financial institutions to identify, measure and mitigate risks. This is a continuing process and efforts by all stakeholders have to be sustained.

Towards a more Inclusive and Sustainable Economy

17. History shows that the impact of pandemics, unlike financial and banking crises, could be a lot more asymmetric by affecting the vulnerable segments more. The COVID-19 pandemic is no exception. Within countries, contact-intensive service sectors employing large number of informal, low-skilled and low-wage workers have been hit harder. In several emerging and developing economies, lack of health care access has disproportionately affected the family budget of the poor. Even education which was provided online during the pandemic excluded the low income households due to the lack of requisite skills and resources. Overall, there are evidences across countries that the pandemic may have severely dented inclusivity.

18. The global recovery has also been uneven across countries and sectors. Advanced economies have normalized faster on the back of higher pace of vaccination and larger policy support. Emerging and developing economies are lagging due to slow access to vaccine and binding constraints on policy support. Multilateralism will lose credibility if it fails to ensure equitable access to vaccine across countries. If we can secure the health and immunity of the poor, we would have made a great leap towards inclusive growth. Global co-operation remains vital for rapid progress on this front.

19. Needless to add that inclusive growth in the post pandemic world will require cooperation and participation of all stake holders. In India, collaborative effort of various stakeholders is helping accomplish a seemingly difficult task of accelerating the pace of vaccination. The private sector is developing and manufacturing the vaccines; the Union Government is centrally procuring and supplying it; and the state governments are delivering and administering it in every nook and corner of the country. India is now administering a record of about one crore doses of the vaccine every day across all segments of the population.

20. A major challenge to inclusiveness in the post pandemic world would come from the fillip to automation provided by the pandemic itself. Greater automation would lead to overall productivity gain, but it may also lead to slack in the labour market. Such a scenario calls for significant skilling/training of our workforce. We also need to guard against any emergence of “digital divide” as digitisation gains speed after the pandemic. Further, the need for professional human resources trained in science, technology, engineering and mathematics (STEM) is rising briskly. Major technology-based firms have expressed their intention to hire many new professionals with skills in these areas. In the short-term, the supply of such a workforce cannot be increased by the traditional educational system, and thus there is a need for close involvement of corporates in the design and implementation of courses suitable to the changing industrial landscape.

21. As we recover, we must deal with the legacies of the crisis and create conditions for strong, inclusive and sustainable growth. Limiting the damage that the crisis inflicted was just the first step; our endeavour should be to ensure durable and sustainable growth in the post-pandemic future. Restoring durability of private consumption, which has remained historically the mainstay of aggregate demand, will be crucial going forward. More importantly, sustainable growth should entail building on macro fundamentals via medium term investments, sound financial systems and structural reforms. Towards this objective, a big push to investment in healthcare, education, innovation, physical and digital infrastructure will be required. We should also continue with further reforms in labour and product markets to encourage competition and dynamism and to benefit from pandemic induced opportunities. The Production Linked Incentive (PLI) scheme announced by the Government for certain sectors is an important initiative to boost the manufacturing sector. It is necessary that the sectors and companies which benefit from this scheme utilise this opportunity to further improve their efficiency and competitiveness. In other words, the gains from the scheme should be durable and not one off.

22. Again, for growth to be sustainable, a transition towards greener future will remain critical. The need for clean and efficient energy systems, disaster resilient infrastructure, and environmental sustainability cannot be overemphasised. Due consideration should be given to individual country roadmaps keeping in mind country-specific features and their stage of development while adopting policies towards climate resilience.

Conclusion

23. On the whole, while the pandemic has created enormous challenges, it can also act as an inflection point to alter the course of development. Enhanced adoption of technology will give impetus to productivity, growth and income. Leveraging technology in implementing government schemes, training and skill development programme for the unemployed, promoting women friendly work atmosphere and supporting education of the poor and marginalized sections would be areas of focus as we embark on our journey beyond COVID-19. Income and job creation with digitalisation and innovation can bring about a new age of prosperity for a large number of people.

24. Many of us have grown up reading Mahatma Gandhi’s Talisman⁵ in text books – “I will give you a talisman. Whenever you are in doubt…Recall the face of the poorest and the weakest man whom you may have seen and ask yourself if the step you contemplate is going to be of any use to him. Will he gain anything by it? Will it restore him to a control over his own life and destiny?” As we strive to build a stronger and resilient India, this pearl of wisdom that we learnt long ago remains as relevant even today.

Thank you. Stay Safe. Namaskar!

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April 14, 2015

Dear All

Welcome to the refurbished site of the Reserve Bank of India.

The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.

With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.

The site can be accessed through most browsers and devices; it also meets accessibility standards.

Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.

Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.

Thank you for your continued support.

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Shri Nilesh Shah, Chairman, CII National Committee on Financial Markets, Shri Vishal Kampani, Co-Chair, Ms. Anuradha Salwan, Head, Financial Sector, CII, Ms. Amita Sarkar, Deputy Director General, CII and friends, I am honoured to be invited to deliver the keynote address in this plenary session of the 12th edition of the Financial Markets Summit organized by the Confederation of Indian Industry (CII). Over the years, the Summit has emerged as a flagship event for taking stock of the evolution of financial markets in India and envisioning future vistas of development. This year’s theme of the role of financial markets in building India for a new world could not have been more timely and relevant, especially in view of the critical role of financial markets through the pandemic and in preparing for a post pandemic world. Over its journey of more than 125 years, the CII has undertaken a pioneering role in endorsing and sponsoring the importance that financial markets have in India’s development strategy. The expansion of the Summit’s agenda in 2016 to include all segments of the market continuum in its ambit has mainstreamed it and brought together market participants, industry, regulatory authorities and civil society with the objective of nurturing and developing our financial markets so as to achieve the aspirational goals of our nation. This theme will resonate throughout my address today, to which I will now turn.

Across the world, the conduct of monetary policy is on the razor’s edge. Incoming data seem to suggest that the global recovery might be faltering or at least losing pace. Meanwhile, inflation that checked in on the back of elevated commodity prices and supply disruptions induced by the pandemic, lingers and the jury is still out on whether it is transitory or persistent. Financial markets, cosseted by massive and prolonged monetary and fiscal stimuli to a point where they are far out of connect with the real economy, are now on edge, trying to second guess the start of normalisation. Under these conditions, monetary policy stances and actions are diverging widely and this by itself is imparting uncertainty in a high-wire situation. Consequently, financial markets, which hitherto basked in clear central bank communication of extended accommodation, are now reading between the lines and outside them in order to time the taper.

In India, the economy is emerging from the second wave of the pandemic, scarred but resilient relative to the first wave’s experience. The recovery appears broad-based and the pivot is manufacturing, but output is still below pre-pandemic levels, especially in contact-based services. Inflation is moderating from the shock spike of May, but core inflation is sticky at still elevated levels. In the financial markets, divergent behaviour is evident – the exuberance of equities versus the cynicism of bonds. Monetary policy has been on a prolonged pause in terms of the policy rate after reducing it to its lowest level ever. The stance of ‘as long as necessary’ accommodation is reflected in ample liquidity in the system, with net surpluses of close to ₹ 9 lakh crore being absorbed by the RBI on a daily basis. Markets are, however, constantly reassessing this stance with incoming data and seek definitive reassurance on the future course of policy.

In this challenging environment, I will use this opportunity to review the year and a half of living with the pandemic and draw lessons therefrom, however formative they might be at this stage. This will be followed by an assessment of the operational conduct of monetary policy in the form of liquidity management vis-à-vis the revised framework that was instituted just before the pandemic. Before closing, I propose to draw a tentative sketch of the way forward, hopefully into pandemic-free times.

II. Lessons from the Pandemic

The pandemic has been both humbling and empowering – humbling because it exposed the frailty of human existence in the face of a virus; empowering because it revealed the indomitability of human courage and endeavour. This polarity is evident in all aspects of the pandemic experience, and the conduct of monetary policy imbibed it too. In order to deal with this once-in-a-lifetime crisis, an extraordinary response was warranted and the RBI rose to the challenge. It is important to note, however, that this became feasible because of the intrinsic flexibility built into the institutional framework in which monetary policy in India is nested. To my mind, that is the most important lesson to be drawn from the pandemic experience for the conduct of monetary policy.

Five years ago, India instituted a flexible inflation targeting (FIT) framework as its monetary policy regime. I recall that at that time there were widespread misgivings in public discourse and within the RBI. It was perceived as a blinkered monetary authority pursuing a narrow inflation target single-mindedly and at the cost of societal objectives when a full-service central bank reflected the aspirations of the nation. The actual experience with FIT in India has exorcised that spectre.

Central banks are synonymous with price stability. Achieving and maintaining price stability when inflation is on the rise inherently involves a sacrifice of output because the only way in which an increase in interest rates can bring down prices is by raising the cost of credit, restraining spending and curbing demand. The essence of FIT is to protect growth by minimizing the sacrifice of output which is the ‘price’ of price stability. Symmetrically, FIT also protects the economy from deflation by adopting a positive – rather than zero – lower bound. This is what the ‘F’ in FIT stands for. In India, it is achieved by five specific features: (a) a dual mandate – “price stability, keeping in mind the objective of growth”; (b) an inflation target defined in averages rather than as a point; (c) achievement of the target over a period of time rather than continuously; (d) a reasonably wide tolerance band around the target to accommodate measurement issues, forecast errors, supply shocks and as vividly demonstrated recently, black swan events like the pandemic; and (e) failure being defined as three consecutive quarters of deviation of inflation from the tolerance band, rather than every deviation from the target.

Over the period 2016-20, inflation averaged 3.9 per cent, which was hailed as a defining success of macroeconomic management. A combination of ‘good luck’ and ‘good policy’ is attributed to this outcome. Be that as it may, monetary policy earned a credibility bonus due to the anchoring of inflation expectations, while investors and businesses reposed confidence in India’s prospects, and we became a preferred habitat for capital flows. Ahead of the incidence of the pandemic, however, these gains were discounted by the view that India’s monetary policy framework has not been tested. And then, the pandemic arrived.

In 2019-20, the Indian economy was into a downturn which had been maturing over the past few years, taking down real GDP growth to 4 per cent which is the lowest in the decade of the 2010s. The MPC had launched into an easing cycle from February 2019 to stimulate economic activity – preceded by rate reductions, the term accommodative was first articulated in the monetary policy stance in June 2019. As soon as the World Health Organisation (WHO) declared COVID-19 as a pandemic in March 2020, the MPC in off-cycle meetings pre-emptively reduced the policy rate by 115 basis points to its lowest level ever. In sync, the RBI infused massive amounts of liquidity cumulating to 8.7 per cent of GDP and undertook several so-called unconventional measures to reach out to specific sectors, institutions and market segments. Inflation had averaged 4.8 per cent in 2019-20; although above target, it was well within the tolerance band and stemmed from a narrowly based food price shock. This was the first use of flexibility pre-emptively under the new framework – the MPC judged that inflation was tolerable, affording policy space to address the more immediate threat to growth.

As may be recalled, the pandemic’s first wave brought the economy to a standstill, crippling almost all aspects of activity and even mobility. A casualty was the collection of price quotations for compiling consumer price index (CPI) inflation, the metric by which the framework is evaluated. Imputations had to be resorted to and this was regarded as a break in the CPI series. In the process, an upside bias was built into data when they started getting collected and compiled from June 2020. As the pandemic intensified, supply and logistics disruptions became severe, mark-ups rose to claw back lost incomes and taxes on petroleum products were increased. Driven up by this unprecedented vortex of forces impacting together, inflation breached the upper tolerance band in the second and third quarters of 2020-21, averaging 6.6 per cent. This experience demonstrated yet another aspect of the “F” in FIT – in view of GDP contracting by 24.4 per cent in the first quarter and by 7.4 per cent in the second, the MPC could afford to stay its hand despite two continuous quarters of deviation from the tolerance band and look through an inflation episode which was obviously driven by transitory factors. I do not want to dwell on a hypothetical ‘what-if’ scenario in which the MPC, concerned about two quarters of deviation and impending accountability failure, would have reacted by raising the policy rate. That would have been disastrous for India.

The MPC’s call turned to be correct. In the fourth quarter of 2020-21, the usual seasonal moderation in food prices came into play and, along with some improvement in supply conditions as the economy unlocked, inflation eased to an average of 4.9 per cent. Congenial financial conditions engendered by monetary policy helped to revive the economy. Growth emerged out of a technical recession in the third quarter and in the fourth, it regained positive territory. Looking back, it was the combination of framework flexibility and astute judgement that healed the economy and helped it rebound.

The pandemic came back in a second wave in the first quarter of 2021-22 and this time around, the vicious circle of forces that drove up inflation earlier were reinforced by external shocks in the form of elevated commodity prices, especially of crude and edible oil. In May and June, inflation overshot the upper tolerance band. With cost push pressures impacting core inflation and inflation expectations, the MPC’s dilemma became sharper because firms showed evidence of some improvement in pricing power and the drivers of inflation were shifting.

The MPC has voted to keep the policy rate unchanged and the stance as accommodative as before. Time will tell if the call is true. Data arrivals vindicate the MPC’s stance, with inflation having moderated into the tolerance band, and growth in the first quarter in almost perfect alignment with the RBI’s forecast. Again, flexibility in the policy framework in the form of measuring the target in terms of quarterly averages rather than single monthly readings worked well.

III. Liquidity Management: The Plumbing in the Architecture

Liquidity management operationalises monetary policy. Our operations in money, debt and forex markets are aimed at a market-based exchange rate with interventions only to smoothen volatility, a calibrated approach to capital account liberalization as a process rather than an event and stability in the evolution of interest rates. They provide us with intermediate solutions to the trilemma of fixed exchange rate, open capital account and independent monetary policy rather than the corner solutions that render it impossible. Independence in monetary policy relates to the freedom to choose a rate of growth and inflation that is independent of global growth and inflation but is right in the national interest.

Under the provisions of the RBI Act and related regulations, it is the MPC which decides on the policy rate while the RBI is enjoined to achieve it and thereby implement monetary policy. The criterion of implementation is transmission of the policy rate to the weighted average call money rate, which is the operating target, and further across the term structure of interest rates in the economy.

In this context, an animated debate has ensued about the RBI having reduced the reverse repo rate more than proportionately, thereby creating an asymmetrical liquidity corridor. One side of the debate argues that this effectively undermines the MPC’s decision on the repo rate because under conditions of ample liquidity, the RBI has to switch to an absorption mode and the effective policy rate becomes the reverse repo rate. I thought I would use this opportunity to address this issue squarely.

First, India has adopted a corridor system for guiding the evolution of money market rates, as opposed to a point for the operating target. Accordingly, in normal times, the reverse repo rate is mechanistically linked to the repo rate by a fixed margin, as is the marginal standing facility (MSF) rate. Hence, whenever the MPC adjusts the policy repo rate, the entire corridor adjusts to align with that decision in a symmetric manner. Pandemic times are, however, drastically different and call for out-of-the-box responses. This is accentuated by the fact that the credit channel of transmission broke down because of muted demand and risk aversion, and the RBI decided to operate through other segments of the financial markets to keep the lifeblood of finance flowing. In a situation in which the repo rate has been reduced by a cumulative 250 basis points since February 2019 and is constrained from being reduced further by elevated inflation, the reduction in the reverse repo rate eased financial conditions so much that it facilitated record levels of access to finance by corporates and governments at low interest rates/spreads. This is a shining example of flexibility in liquidity management, complementing similar flexibility in the monetary policy framework. Effectively, the RBI employed the corridor itself as an instrument of policy, running it in absorption mode and the operating target aligned with the lower bound of the corridor rather than in the middle. This was undertaken by almost all central banks during the pandemic. It was also undertaken by the RBI to manage the taper tantrum of 2013 but on the upper side of the corridor.

Second, the suggestion to adjust the reverse repo rate asymmetrically relative to the repo rate was made by an external member of the MPC, as a perusal of the published minutes of its meetings will reveal. Furthermore, market participants also gave us similar feedback in pre-policy consultations. In effect, the RBI followed this counsel and the written resolutions of the MPC not just in letter, but also in spirit. By no means is the asymmetric corridor cast in stone. As normalcy returns, markets will return to regular timings. They will require normal liquidity management operations and a regular and symmetric LAF corridor, as envisaged under the liquidity management framework announced in February 2020. Currently, however, the need to revive and sustain growth on a durable basis and mitigate the impact of the pandemic while keeping inflation within the target going forward warrants monetary policy accommodation mirrored in ample liquidity flushed through the system and easy financial conditions.

Third, the RBI has announced a graduated time path for variable rate reverse repo (VRRR) auctions with a view to restoring them as the main operation under the February 2020 liquidity framework. This has been misconstrued in some quarters as a liquidity tightening measure. Nothing can be farther from the truth. At the end of September up to which VRRRs auctions have been announced, the daily surplus absorbed under the liquidity adjustment facility (LAF) will still be around ₹ 9 lakh crore – the same level as today – if not higher, more than half of which would still be under the fixed rate reverse repo. The RBI will remain in surplus mode and the liquidity management framework will continue in absorption mode. It is our hope that credit demand will recover and banks will get back to their core function of financial intermediation as soon as they can. This is the natural and the RBI-preferred manner in which surpluses in the LAF can be reduced.

A less compelling point is that VRRRs are effectively a way of remunerating excess reserves, thereby injecting additional liquidity into the system. It is not, and I would emphasize this, it is not a signal either for withdrawal of liquidity or of lift-off of interest rates. Signals of the latter will be conveyed through the stance that is articulated by the MPC in its future resolutions. We don’t like tantrums; we like tepid and transparent transitions – glidepaths rather than crash landings.

IV. The Way Forward

The outlook is overcast with the pandemic. Future waves may have to be navigated on the voyage beyond into a world that can live with COVID-19 without loss of life and livelihoods. On this journey, the course of monetary policy will be shaped by the manner in which the outlook for growth and inflation evolves.

Our surveys suggest that seasonally adjusted capacity utilization in manufacturing is expected to recover in the second half of the year, but the catch-up with trend may take more time. Inventories of raw materials remain below pre-pandemic levels and are expected to be drawn down further. In conjunction with improving production and order books, this suggests that demand is gradually recovering. For the economy as a whole, the output gap – which measures the deviation of the level of GDP from its trend – is negative and wider than it was in 2019-20. Given these developments and with the GDP outcome for the first quarter coming in just a shade below the RBI’s forecast, the projection of growth of 9.5 per cent for the year as a whole appears to be on track. Even so, as Governor Shri Shaktikanta Das pointed out in a recent interview, the size of the economy would just about be exceeding the pre-pandemic (2019-20) level².

In the MPC’s assessment, inflationary pressures are largely driven by supply shocks. Although shocks of this type are typically transitory, the repetitive incidence of shocks is giving inflation a persistent character. Contributions to inflation are emanating from a narrow group of goods – items constituting around 20 per cent of the CPI are responsible for more than 50 per cent of inflation. The analysis of inflation dynamics indicates that the easing of headline inflation from current levels is likely to be grudging and uneven. First, the distribution of inflation has skewed to the right with high variance – a large number of items is massed in a long fat right tail, pulling the mean of the distribution to the right of the median. To us, this indicates persistence of supply shocks. Second, over the months ahead, supply augmenting measures taken by the government should mend disruptions and imbalances, alleviating some cost pressures, but the pass-through of imported price pressures to retail prices remains incomplete. Third, turning to second order effects, house rentals remain subdued and rural wage growth is muted, but rising staff costs suggest that incipient wage pressures are building in the organized sector as workplaces fill up. Our surveys of the manufacturing, services and infrastructure firms are also pointing to an increase in selling prices in the period ahead.

The MPC remains committed to its primary mandate of price stability, numerically defined as 4 per cent with a tolerance band of +/- 2 per cent around it. Taking into account the outlook on growth and inflation and keeping in mind the inherent output costs of disinflation, it is pragmatic to envisage a glidepath along which the MPC can steer the path of inflation into the future. The MPC demonstrated its commitment and ability to anchor inflation expectations around the target of 4 per cent during 2016-20. Confronted with a once-in-a-century pandemic, the MPC had to tolerate higher average inflation of 6.2 per cent in 2020-21. The envisaged glidepath should take inflation down to 5.7 per cent or lower in 2021-22, to below 5 per cent in 2022-23 and closer to the target of 4 per cent by 2023-24. The rebalancing of liquidity conditions will dovetail into this glidepath, but the choice of instruments is best left to the judgment of the RBI with its considerable experience with such tapers.

V. Conclusion

Monetary policy is all about the feasible. This inherently imposes a trade-off with the desirable. Pragmatism, gradualism and calibration are its distinctive features, except in challenging times when central banks become defenders of the first resort or as it is said, the only game in town when the chips are down. Every crisis makes them wiser, hones their skills and strengthens their commitment to the goal of macroeconomic and financial stability to promote sustainable and inclusive growth.

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April 14, 2015

Dear All

Welcome to the refurbished site of the Reserve Bank of India.

The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.

With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.

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It is my pleasure to be part of the Annual FIMMDA-PDAI Conference today. I take this opportunity to place on record the Reserve Bank’s deep appreciation of the key role played by FIMMDA and PDAI in the development of financial markets in India. Both organizations have played a significant role in improving the depth and liquidity of interest rate markets and in supporting primary issuance by the Government.

Introduction

2. During May last year, in one of my statements, I had noted that COVID-19 has crippled the global economy, and that once again, central banks have to answer the call to the frontline in defence of the economy. It has been more than a year since. While there are signs of recovery, we are not yet out of the woods.

3. The sudden shock delivered by the pandemic called for swift and decisive policy responses. Central banks across the globe responded by lowering interest rates, expanding their balance sheets through large-scale purchase of government securities (G-sec) and other assets and injecting vast amounts of liquidity into the financial system. Many central banks also implemented measures targeting specific market segments that were witnessing heightened stress. These measures were, in many cases, complemented by regulatory relaxations (lower capital and liquidity requirements) aimed at supporting credit flow from banks and other financial intermediaries and at stabilizing the financial system and restoring confidence in financial markets.

4. The Reserve Bank too responded swiftly and undertook several conventional, unconventional and innovative measures in the realms of monetary policy, liquidity support and regulation. The Reserve Bank, like most debt managers around the globe, was confronted with a highly expanded borrowing programme of the Government. Through various measures, the Reserve Bank completed the borrowing programme in a non-disruptive manner and also created congenial conditions for other segments of the financial market such as the corporate bond market. The stabilisation of credit spreads across the rating ladder resulted in issuances of corporate bonds to the tune of ₹7.72 lakh crore in 2020-21. In my address today, I propose to focus on the G-Sec market which is the single most important financial market in any economy. Needless to add that this is a subject of great interest to both FIMMDA and PDAI.

Distinctive features of the G-sec market

5. The G-sec market is distinct from other financial markets in a fundamental way – it is the market in which the risk-free interest rate, a key macroeconomic variable, is determined. G-sec yields act as the benchmark for pricing of most financial assets. Without a well-functioning G-sec market, therefore, the financial system cannot function efficiently.

6. There are other distinctive features of the G-sec market. First, globally the G-sec market is predominantly an institutional market, with the major participants being banks and long-term investors, including investment funds, insurance funds, retirement funds. Second, different G-sec instruments are highly substitutable, the only differentiating factor being tenor of instruments. This is one of the reasons why the G-sec yield curve may be viewed as a public good, as I have been emphasizing. Third, G-secs provide the most widely used high quality collateral for payment and settlement systems, liquidity operations and other financial sector transactions. Fourth, and this is particularly relevant for a central bank, virtually all monetary operations are executed in the G-sec market. Monetary transmission is fundamentally linked to an efficient G-sec market in any market economy.

7. Let me now highlight some of the important measures taken to develop the G-sec market and how this role provides the Reserve Bank with the critical levers to balance its multiple responsibilities during normal times as well as during periods of stress.

Evolution of the Government Securities Market in India

8. Within the overarching statutory framework of the RBI Act, 1934, the Government Securities Act, 2006 and the Payment and Settlement Systems Act, 2007, the Reserve Bank has enabled the development of When Issued (WI) trading in G-secs, short-selling, repo transactions, interest rate derivatives and the like. Further, to promote integrity, transparency and fair access in markets, the Reserve Bank has introduced global best practices with the issuance of the Electronic Trading Platforms (ETP) (Reserve Bank) Directions, in 2018, directions for Prevention of Market Abuse in 2019 and the Financial Benchmark Administrators (Reserve Bank) Directions in 2019. As a consequence of these efforts, the legal and regulatory framework for the G-sec markets has evolved over the years to facilitate efficient management of public debt and development of secondary markets.

The Supply Side – From Monetisation of Debt to Market-based Debt Management

9. The development of the G-sec market was greatly facilitated by the abolition of automatic monetization of government debt, introduction of the auction process for issuance and enactment of FRBM Act, 2003. The next phase of reforms was directed towards institutional development, including the institution of Primary Dealers (PDs); establishment of the Clearing Corporation of India Ltd. (CCIL) – a central counterparty for guaranteed settlement – and formation of market bodies such as the FIMMDA and the PDAI. Since December 2015, a medium-term debt management strategy (MTDS) has been articulated which revolves around three broad pillars, viz., borrowing at low cost over a medium term, risk mitigation and market development.

10. Issuances of G-secs are made in different maturity buckets, enabling the formation of a yield curve up to 40 years. Secondary market liquidity is supported by building up issue sizes through reissuances. The consequent rollover risk is managed through active consolidation using buyback/switches.

11. Transparency in supply was enhanced through the introduction of issuance calendars for auctions in G-secs since April, 2002. Auctions are conducted electronically, which ensure transparency as well as efficiency. Product diversity is ensured through various instruments, including inflation-linked bonds and floating-rate bonds. Treasury Bills and Cash Management Bills are issued to smoothen Government cash flows. Regulatory provisions for issuance of Separate Trading of Registered Interest and Principal of Securities (STRIPS) have also been made to facilitate the development of a zero-coupon yield curve and to attract retail investors to the G-sec market. Going forward, it would be desirable for the Reserve Bank and the market bodies like FIMMDA and PDAI to work together to popularize the STRIPS instrument further. Niche products targeted at retail investors also include sovereign gold bonds (a government security denominated in gold) and savings bonds.

The Demand Side – Resilience amidst Diversity

12. To impart resilience and diversity to the G-sec market, several steps have been taken to encourage direct retail participation. These steps include provision for non-competitive bidding in primary auctions and the odd-lot segment on NDS-OM; permitting banks/primary dealers /stock exchanges to act as aggregators/facilitators for retail investors; introduction of products for retail investors, etc. Interoperability is sought to be enhanced by linking market infrastructure – linking exchange trading systems and NDS-OM; and linking RBI’s Subsidiary General Ledger system and the depositories.

13. Foreign investors have been permitted to invest in G-secs, subject to prudential limits. Recent initiatives like the introduction of the Voluntary Retention Route (VRR) and Fully Accessible Route (FAR) have contributed to demand side resilience. Non-resident participation in interest rate derivatives markets for hedging as well trading has been permitted. The regulatory framework for hedging of foreign exchange risk has been liberalized to incentivize investors to hedge their currency risk onshore. Several other measures to promote ‘ease of doing business’ by foreign investors viz., T+2 settlement of trades, extended timing for reporting of transactions and allowing banks to fund margins for G-sec trades, have also been taken.

Market Infrastructure – State-of-the-art Trade and Post-Trade Services

14. A sound, robust and safe market infrastructure increases the resilience of the G-sec market against external shocks and contributes to price discovery. The Reserve Bank has continuously engaged in developing state-of-the-art infrastructure relating to trading and post-trade services, including settlement, reporting and timely dissemination of traded information, both in outright and repo markets. I can say with all humility that the infrastructure of the G-sec market in India can be regarded as cutting edge in terms of sophistication. The NDS-OM system of the Reserve Bank – an anonymous order matching platform – provides multiple functionalities, which include trading in standard and odd lot sizes and trading in the “when-issued” market. This is in sharp contrast to most jurisdictions – including advanced economies, where trading in government bonds is predominantly voice-negotiated or fragmented over multiple Electronic Trading Platforms (ETPs). The NDS-OM is perhaps unique as it (i) provides unparalleled pre- and post-trade transparency; (ii) pools all market liquidity, providing a single order book; and (iii) facilitates anonymity in trading, thus ensuring fair and non-discriminatory price discovery even for small investors.

15. Complementing the trading infrastructure is a delivery-versus-payment-based guaranteed settlement mechanism which eliminates settlement risks and, through multilateral netting, reduces liquidity requirements. This is one of the important features of G-sec market in India as not many jurisdictions have central clearing of G-secs let alone central clearing for all cash and repo transactions in G-secs at one place. In fact, there is growing discussion in advanced economies about the need for widespread adoption of central clearing, after recent episodes of market dislocation.

16. High levels of pre-trade and post-trade transparency are achieved through public dissemination of live orders and all trades being executed on NDS-OM. Trade-wise historical data are available to all. End of day publication of valuations of G-secs by an independent benchmark administrator (FBIL) improves price transparency.

Complementary Markets

17. G-sec markets need supporting markets in the form of funding markets and risk markets. The repo market performs the function of a funding market. Similarly, interest rate derivative markets enable management of risk. Comprehensive directions covering both OTC and exchange-traded derivatives were issued in 2019 rationalising the regulations for eligible institutions, permissible instruments, exposure limits and reporting. Futures and options have been introduced. Efforts to make the markets deep and liquid remain ongoing.

RBI and the Government Securities market

18. Let me now turn to the criticality of the G-sec market for effective discharge of Reserve Bank’s functions. The Reserve Bank’s multi-faceted role as monetary policy authority, manager of systemic liquidity, government debt manager, regulator of interest rate and foreign exchange markets, regulator of payment and settlement systems and overseer of financial stability makes the G-sec market critical for the effective discharge of these responsibilities.

19. With the development of the domestic financial markets and deregulation of interest rates, effective transmission of monetary policy impulses relies on the G-sec market being deep and liquid so as to create the intended impact on interest rates by linking expectations of future short-term rates to current long-term rates.

20. Similarly, a well-functioning G-sec market ensures efficient discharge of the public debt management function. The public debt structure viz., quantity, composition and ownership of debt also influences monetary conditions. In the wake of the pandemic, when fiscal response resulted in a sharp increase in government borrowing, the market operations conducted by Reserve Bank not only ensured non-disruptive implementation of the borrowing programme, but also facilitated the stable and orderly evolution of the yield curve. Monetary policy, G-sec market regulation and public debt management, therefore, need to be conducted in close coordination, and the primary focus of such coordination is the G-sec market.

21. The current arrangements of the G-sec repository residing with the Reserve Bank facilitate seamless conduct of liquidity operations and simultaneous settlement of G-sec trading. This provides confidence to investors, removes custodial risk, and minimises transaction costs. Access to real time market intelligence arising from ownership / oversight of market infrastructure is critical for fine-tuning of timely policy responses.

22. The Reserve Bank’s regulation of the G-sec market has also a strong synergy with its role as the banking regulator – as banks are the largest category of participants in these markets. The importance of this aspect is also highlighted in the recent G30 report which identified the balkanized regulation of US Treasury markets where banking regulations seem to have adversely impacted market-making.

23. The current regulatory arrangement for G-secs offers synergies in terms of a unified market for G-secs, repo in G-secs, liquidity and other monetary operations, exchange rate management, regulation for key derivative markets, public debt management and prudential regulation of banks, the largest category among market participants. The synergy between the Reserve Bank’s responsibility for key macro market variables – interest rates and exchange rates, which ensures overall financial market efficiency – and its obligation to ensure stability while keeping in mind the objective of growth is well-accepted. Indeed, its effectiveness in managing stress in foreign exchange and interest rate markets is made possible by direct access and oversight of the G-sec market.

Agenda for the Future

24. The size of the Indian G-sec market, measured in terms of outstanding stock as a per cent of GDP, is large relative to most Asian peers. Liquidity, measured through average bid-ask spreads for Indian G-secs is among the best, as per a 2019 BIS study¹. The G-sec market has also provided a robust backbone for the development of the corporate bond market.

25. Notwithstanding the robust evolution of the G-sec market in India, there is scope for further development to remain in sync with the emerging requirements. First, secondary market liquidity, as measured by the turnover ratio is found to be relatively low on several occasions and tends to remain concentrated in a few securities and tenors. The yield curve accordingly displays kinks, reflecting the liquidity premium commanded by select securities / tenors. To a certain extent, this is the result of the market microstructure in India, dominated as it is by ‘buy and hold’ and ‘long only’ investors. We need to develop a yield curve that is liquid across tenors.

26. Second, expansion of the investor base is key to further development of the market. The RBI, together with the Government, is making efforts to enable international settlement of transactions in G-secs through International Central Securities Depositories (ICSDs). Once operationalized, this will enhance access of non-residents to the G-secs market, as will the inclusion of Indian G-secs in global bond indices, for which efforts are ongoing. To encourage direct retail participation in G-secs, RBI has announced the ‘Retail Direct’ scheme, a one-stop solution to facilitate investment in government securities by individual investors.

27. Third, liquidity in G-secs market tends to dry up during periods of rising interest rates or in times of uncertainty. While the market for ‘special repo’ facilitates borrowing of securities, it is worthwhile to consider other alternatives that ensure adequate supply of securities to the market across the spectrum of maturities. It may be recalled that discussions were held on the introduction of Securities Lending and Borrowing Mechanism (SLBM) with a view to augment secondary market liquidity, by incentivizing ‘buy and hold’ type of investors (e.g., insurance companies, pension funds) to make available their securities to other market participants. Useful feedback was received on the subject from the FIMMDA and the PDAI. I would urge that these discussions be carried forward with a view to evolving market-based mechanisms that enable the lending and borrowing of securities as part of overall market development.

28. Fourth, the interest rate derivatives (IRD) market has developed over the years with the availability of a wide range of products. The only major liquid product, however, continues to be the Mumbai Interbank Offer Rate (MIBOR) based Overnight Indexed Swaps (OIS) market. Participation in the IRD markets is also largely limited to foreign banks, private sector banks and primary dealers. I am happy to note that based on RBI Directions, FIMMDA formulated the operational guidelines for trade in swaptions in consultation with market participants and trading in swaptions have commenced. It is also an opportune time to consider new instruments to facilitate hedging of long-term interest rate and reinvestment risk by market participants such as insurance companies, provident and pension funds and corporates. On its part, the Reserve Bank will endeavour to ensure adequate liquidity in the G-sec market as an integral element of its effort to maintain comfortable liquidity conditions in the system. In my monetary policy statement of August 6, 2021, I had set out a roadmap for the gradual restoration of the variable rate reverse repo (VRRR) auction as the main operation under the revised liquidity management framework announced on February 6, 2020. In order to facilitate this process as markets settle down to regular timings and functioning and liquidity operations normalise, the Reserve Bank will also conduct fine-tuning operations from time to time as needed to manage unanticipated and one-off liquidity flows so that liquid conditions in the system evolve in a balanced and evenly distributed manner.

Conclusion

29. Government securities are a distinct asset class. It is important to appreciate the role the G-sec market plays in the overall macro interest rate environment of the economy. Over the years, the market for G-secs and the associated market infrastructure have reached a stage where it could be considered as one among the best in the world. These developments have taken place in tandem with efforts to develop and liberalise other key financial markets such as the markets for interest rate derivatives and foreign exchange markets, together with efforts to build linkages across different markets and market infrastructure. We have come a long way in developing the financial markets in the country, but this is a continuous journey and together we can make it even more robust and vibrant.

Thank you.

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TANVIR GILL: To discuss India’s economic and monetary policy outlook, I’m joined by a very special voice from India. I’m joined by the honourable governor of the Reserve Bank of India, Mr. Shaktikanta Das, in his first TV interview with an international business channel since he took office in December 2018.

Sir, it’s great to have you on the show. Thank you very much Governor for joining us for this CNBC Exclusive.

SHAKTIKANTA DAS: Thank you.

TANVIR GILL: I would like to start off by understanding your growth outlook for India. Post the deadly COVID wave which was very, very unfortunate for the country, RBI growth forecast stands at 9.5% percent for FY 2022. And for Q1, the projection is 21.4%.

What is your overall assessment of this growth outlook and the balance of risks around this forecast?

SHAKTIKANTA DAS: You see the forecast which we have given now: 9.5%. I think it is quite appropriate for the current year. The first quarter growth forecast this year of 21% is mainly because of the base effect of last year when India recorded (-) 24.4% growth or something in that order.

But nonetheless, economic activities gained momentum in the first quarter of this year – and of course, got subsequently dented by the onset of the second wave of the pandemic. So far as we are concerned, I think we now see revival of activity in various sectors of the economy: manufacturing and even in services sector – that is, non-contact intensive services sector – is also reviving well.

It’s the contact-intensive services sector and a few other services which are affected. In manufacturing, it is the small and medium units which are yet to recover fully. So broadly, therefore, the 9.5% which we have projected – in fact, our earlier projection was 10.5% for the current year – we moderated it slightly to the 9.5%, taking into account the impact of the second wave.

And I think at this point of time, I would like to say that our assessment of 9.5% should hold good for the current year.

TANVIR GILL: And for next year – FY 2023. What is the outlook?

SHAKTIKANTA DAS: Normally we don’t give the outlook for next year. We have given an outlook, for the first quarter of next year. So, going forward, we will have to see. Maybe after September, depending on what has been the impact of the second wave of the pandemic on the first half of this year, we will be in a far better position to assess the overall impact.

TANVIR GILL: In an official statement, the MPC has decided to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 – while ensuring that inflation remains within the tight target range going forward. This is, of course, the official statement of the MPC in terms of its forward guidance.

How should one interpret this guidance? What qualifies as durable growth sustained over what period of time?

SHAKTIKANTA DAS: Let me first give a little bit of the background. The COVID pandemic started towards the middle of March last year. And ever since that time, we have gone through extremely uncertain conditions – that dent on the global economy and the Indian economy has been severe.

RBI’s effort and the effort of the monetary policy committee of the Reserve Bank of India has been – first, it continued with the accommodative stance, reduced the policy rates, and the effort was to create congenial financial conditions in which the economy can come back to normalcy. And we have made every possible endeavour. In fact, we have taken about 100-odd measures since March last year to mitigate the impact of COVID-19 on the economy. So, our effort has been to nurture the economy by providing easy monetary and financial conditions and various policy measures – monetary and regulatory policy included some relaxations with regard to the banking sector and other aspects of the financial sector.

Our effort has been to nurture the recovery process, and it is satisfying to note that the economy and all activities have responded well to the impulses which were generated from the central bank. Now we are in a situation where the inflation seems to be spiking up. It has in fact, remained upwards of 5% – in between, it exceeded 6%. But now it has gone below 6% – which is the upper band.

So, at this point of time, we are watching the revival of the economic activity – there is still uncertainty prevailing around the pandemic. Today morning, I was looking at the new cases in India and they have again inched up to about 46,000 new cases, compared to about between 30,000 to 40,000 new cases almost on a daily basis. Today it is 46,000 and some parts of India are showing increasing infections.

What impact that’s going to have on the economic activity is something to be assessed. So, once we are convinced that the economic recovery process, which, as I’ve said a couple of days earlier, is now delicately poised. When the revival of economic activity shows signs of durability and sustainability, I think that should be an appropriate time for the Reserve Bank or for the monetary policy committee to perhaps consider change in our course.

TANVIR GILL: The pandemic has left some scars in certain pockets of India: the informal sector that employs 80% of India’s labour force and produces 50% of GDP, and the SME sector that you touched upon. What more can the RBI do to help heal those scars?

SHAKTIKANTA DAS: So far as the SME sector is concerned, during the course of the pandemic, we have announced several restructuring packages for the MSMEs and many of the MSMEs have restructured themselves. Not only that, we have also targeted long-term repo operations – this TLTRO as we call it – to the MSME sector. We provided refinance facilities and liquidity to the SIDBI – that is the Small Industries Development Bank of India – and to the NHB – the National Housing Bank – to support the MSME sector, smaller NBFCs and the microfinance institutions, which in turn support the small and medium enterprises and the informal sector.

The government on its part has also introduced several fiscal support measures. I think there is a scheme, called PM SVANidhi, where the targeted group is the informal sector, the roadside vendors and others. In fact, a couple of days ago we decided to earmark a certain portion of our payment infrastructure development fund – the PIDF – to give handheld payment devices to the informal sector, so that they are able to do transactions quickly.

So far as the MSME sector and the informal sector is concerned, we are operating through the NBFCs, and through the banks. For the SME sector in particular, we have provided restructuring packages and many of them have already availed. In fact, when the second wave started, we again announced another package for the SME sector on the 5th of May, 2021 and that is still under implementation.

TANVIR GILL: Has a consumption recovery also been scarred? Has that been derailed as household debt rises and savings go down? What kind of contribution can we expect from this sector given that private consumption is nearly 60% of the economy?

SHAKTIKANTA DAS: Consumption was dented, no doubt on that, and the aggregate demand is still nowhere near normal.

Today, we are getting big support for the aggregate demand from the export sector, because of faster revival in developed economies. External demand looks much stronger than it was. The export sector of India is doing extremely well and that is adding to the aggregate demand.

Now, so far as domestic consumption is concerned, the government consumption expenditure has been the prime mover for the revival process. Private consumption expenditure is gradually picking up. So, going forward, once the huge allocation which government has made for infrastructure and other sectors kicks in in a big way which it is indeed doing so at the moment, we would expect private consumption expenditure also to pick up. In fact, some of the indicators, like the sale of fast moving consumer goods or consumer durables are showing considerable amount of improvement. So, by the end of the year, I would expect consumer demand to have increased substantially over the current levels or over the levels where the COVID impact took them down.

TANVIR GILL: Okay, that’s heartening to hear. How real is the risk of stagflation for India? Because it does come up in conversations. You know, when we talk about the US economy’s outlook as well, that’s a scenario that’s being worked with. How real is the risk of stagflation for India?

SHAKTIKANTA DAS: No, I would not agree and I would not put stagflation as an issue on the table for discussion in the context of India. And I’ll explain why.

Now so far as inflation is concerned, as it has been stated in our monetary policy statement, most of the impulses of inflation at this point of time appear to be one-off factors or, as some people like to describe it, transitory. Our inflation forecast shows that in the third quarter of this year, inflation will moderate. Take the example of last year. Last year in September and October, inflation in fact crossed 7%. At that time, there was worry all around, but the MPC assessed that the inflation will moderate going forward. The inflation did moderate, and came very close to 4% in the first quarter of this calendar year – January to March.

At this point of time, we also feel that the inflation will moderate going forward. The current inflation and inflation momentum is driven primarily by supply-side factors. And the supply-side factors are correcting themselves. The concerned authorities are also taking the necessary steps. We are in constant discussion with the government and other authorities so that necessary steps are taken, because RBI doesn’t control the supply-side factors. Whatever corrections need to be taken or can be taken have to be by the people who control them.

We expect inflation to moderate. We explained that we expect the supply-side factors to even out going forward, the current inflation looks transitory, and RBI remains fully conscious of its responsibility to anchor inflation expectations. Going forward, RBI will ensure that the inflation does not become uncontrollable, it will be dealt with.

So far as growth is concerned, as I have explained, economic revival is taking place. In fact, the revival process was far stronger in the months of January, February and March this year. But thereafter, the second wave again pulled it down. Now, it is recovering again. Therefore, the possibility of stagflation – I would not foresee such a possibility.

TANVIR GILL: Right, you think of inflation as transitory, Governor. But as recovery takes shape and the output gap closes, wouldn’t that put pressure on the demand side of inflation as well? I mean, isn’t there the risk of a swift overshoot, and are you prepared for that?

SHAKTIKANTA DAS: No, it’s like this – even at the moment, capacity utilization is nowhere near pre-pandemic levels. I was looking at the data released a few days ago – some 400 odd industries for which data has been released. Out of that, almost 250 industries- I’m talking about the industrial items. In about 50% of the items, the capacity utilization is falling short of their normal level. There is a gap in capacity utilization, there is a slack in the economy. Aggregate demand still has a lot of gap to fill up.

We are constantly monitoring the situation, and we will act at the appropriate time. At the current juncture, we feel that that appropriate time has not come. Not only me, but I think the MPC also feels that we should allow the supply-side factors to correct themselves. We should allow the authorities to also take necessary corrective measures in respect of the supply-side factors and allow that to play out, and then see how the picture works out.

TANVIR GILL: When would the time be appropriate, Sir?

SHAKTIKANTA DAS: Well that I cannot spell out at this point of time. We are watchful of all the incoming data on the growth front. On the inflation front, it all depends. I told you two things: number one, we are watchful of how the supply-side factors are correcting themselves. Number two, we are also watchful of how the growth and the revival process is picking up.

Once we are convinced that the revival process has taken certain routes, and it looks sustainable, durable, we have to also factor in the inflation scenario at that particular time. It depends on the evolving macroeconomic situation. I would not like to pre-empt what the MPC should do.

TANVIR GILL: But I’ll tell you where I’m coming from. I spoke to a lot of analysts before this interview. And the overarching view seems to be that the RBI’s policy tolerance for inflation has gone up. Has it?

SHAKTIKANTA DAS: Yes, I think I have said it also. I have said it myself and the MPC statement also says so. We have an inflation target of 4%, but we have a range of 2-6%. Inflation targeting will be treated as a failure if it exceeds or if it goes beyond the range of 2-6% for three consecutive quarters.

Now, the beauty of the flexible inflation targeting framework is that in situations of extreme stress, like the one we have been confronting for the last one and a half years, it is that range of 2-6% which gives flexibility to the monetary policy committee to also focus on the growth requirements of the economy. If you read the law carefully, it says that the RBI will be responsible for inflation targeting at 4%, keeping in mind the objective of growth.

The flexible inflation targeting gives that elbow room, gives that space for MPC to respond to extreme stress situations that we are confronted with today. Also, monetary policy and inflation targeting has to be always forward looking. We have to look forward to how the inflation curve is likely to play out. It’s a forward-looking policy. It has to respond to what our expectation is from the coming quarters or from the coming months.

TANVIR GILL: Let’s move forward and discuss your outlook on interest rates as far as India is concerned. The recent MPC minutes showed that there was one dissent by Mr. Jayanth Varma who believes it is time to move away from accommodative policy. There is the expectation that in October the MPC would be further divided on this issue. What is your thinking on this front?

SHAKTIKANTA DAS: No, as I said it will depend on the evolving macroeconomic situation. And this is not the first time that there is a difference of opinion in the MPC. In fact, right through the pandemic or even earlier, there have been situations where MPC decisions have been taken with the majority of 4-2. So, this is not the first time that there is a difference of opinion. Individual members have also expressed their views, and the minutes are already available in the public domain. And what will our approach be in October? That will depend on the evolving macroeconomic conditions.

TANVIR GILL: Given the Fed’s communication of its tapering plans, and what we’ve seen from other central banks around the world, isn’t now a good time for the RBI to start preparing the markets and investors? Communicating on what’s to come and indicating a timeline for policy normalization?

SHAKTIKANTA DAS: We will act at the appropriate time. When we consider that the time is appropriate, the RBI will be second to none before doing it. As I said at the meeting, we are fully conscious of our responsibility regarding inflation. But it is not the appropriate moment, we will wait for the evolving macroeconomic conditions and then respond appropriately.

Let me also mention, since you refer to the US Fed – we do keep a very close watch on the monetary policy actions of the central banks in advanced economics, and in particular the US Fed. That has impact on our domestic situation. But our monetary policy is primarily and principally determined by domestic macroeconomic conditions.

TANVIR GILL: I’ll come to that in a bit, especially the discussion around the tapering risk and what that means for India.

Aside of the timing issue, what about the policy normalization sequence outside of the benchmark interest rate – whether it’s a reverse repo rate hike, whether it’s withdrawing excess liquidity in the system or also looking at a variable reverse repo issuance – what will the policy normalization sequence be? And can you share your thought process on that?

SHAKTIKANTA DAS: I would not like to give out our internal thinking. In any case, these are aspects which are constantly analysed internally in RBI at regular intervals. Going forward, what are the policy responses going to be?

Let us also not suppose that we have made up our mind for a reversal and therefore, we should start planning for its sequencing. We keep all our options open, we are extremely watchful of the evolving situation, we consider all policy options. When you say ‘What will be the sequencing?’, you are assuming that RBI has made up its mind to reverse its monetary policy – by RBI I am referring to the internal thinking and the analytical departments, not the governor level. So, let’s not assume that it has been decided by RBI to reverse the policies and therefore, we should plan sequencing.

Having said that, we plan all possible aspects. We plan for if there’s faster growth, what is to be done if growth gets delayed, what is to be done if there is a third wave, and if the impact is of a certain magnitude, what should be our response? There is a school of thought which does strongly believe that inflation in India has already peaked, and in future, it will only moderate. Whether it has reached the peak, I have not said so, but there are others who have said so.

Therefore, supposing the inflation considerably moderates, then naturally the timing of any change in the monetary policy will get impacted by that, it will get further postponed. We are very watchful of the evolving macroeconomic conditions, because that really describes the way we view things. We use various permutations and combinations and look at all possible options under various hypothetical situations, should they turn out to be true.

TANVIR GILL: This is just my final question on this issue, then I’ll move on. But would there not be an element of surprise coming in from the RBI? Because I hear you and you’re in wait and watch mode, but when I look at professional forecasters, they are already pencilling in the first rate hike for India in the first quarter of 2022. And so I just want to understand, how will this work?

SHAKTIKANTA DAS: Throughout the pandemic the RBI has surprised the market in a positive sense, by announcing measures from time to time and responding to the evolving challenges very proactively. So, throughout the pandemic, there have been very pleasant surprises for the market. We are fully conscious and will not try to make any changes which take the market by surprise.

As I have said earlier and I would like to repeat – all our actions will be calibrated, they will be well-timed, they will be cautious and they will keep in mind aspects like what you are mentioning. We don’t want to give any sudden shock or any sudden surprises to the markets.

TANVIR GILL: All right. In fact, I must also say that all the analysts who have spoken have lauded you for your efforts through the Covid-19 pandemic, calling you an unsung hero in terms of all the measures that you’ve put in place in helping the economy survive through this historic crisis.

To the external sector, as a source of funding, what is the timeline for India’s inclusion on the global bond indices?

SHAKTIKANTA DAS: Both the RBI and the government are working very closely with the bond index providers and there are some issues relating to capital account convertibility. Now, the entities which provide bond indices, they have a certain way of looking at capital account convertibility.

Yes, India is not fully convertible on the capital account. But having said that, India is almost there. I mean, there are no restrictions on FDI or ODI. Of course, there are certain overall caps with regard to FDI inflows, but on outflows there are no restrictions. In fact, in terms of liquidity, the G-Sec market of India is one of the most liquid, with no restrictions on outflow of funds. Our stock markets also do not have any restriction on the outflow of funds.

So, whether it is FDI, whether it is incoming foreign direct investment or it is incoming foreign portfolio investment, the regime has been liberalized to a great extent. We are engaged with these bond index providers to convince them that although technically India is not fully convertible on the capital account, India has no artificial or other kinds of restrictions, which impedes free movement of capital both ways.

It is a process of convincing them. I think going forward, we should see some traction. Let us see, maybe in the next few months, because it’s necessary both for us and for them to develop that understanding. We are trying to explain to them and convince them that indeed, technically, we may not be convertible on the capital account. But for all practical purposes, India has a very, very liberalized capital account regime.

TANVIR GILL: It’s an important development for fixed income investors watching India.

How are you preparing for tapering risks? I know that the current account situation is favourable for India, the forex situation looks very comfortable. But just in terms of managing the orderliness of the event going in and out, in terms of whether or not it can lead to potential outflows – knee jerk, potential outflows. Also for the rate differential story, could that lead to and drive outflows from India? Just this morning, we heard about the BoK hike rates. And so how are you thinking about the world tightening and your position?

SHAKTIKANTA DAS: I missed out the first part of the question. Can you repeat that?

TANVIR GILL: How are you preparing for the tapering risk? To make it orderly so that the impact in India is minimal?

SHAKTIKANTA DAS: Our forex reserves are very robust at the moment. It’s about US$619 billion, which is an all-time high. So we do not expect to see the kind of impact that the taper tantrum of 2013 produced. I think India is fairly insulated, thanks to our huge amount of forex reserves. We are far better placed today to deal with any possible impact of spillovers of US policy reversal. The US Fed have also time and again emphasized they are giving enough forward guidance. So it’s not as if they are going to do it right away.

At the moment, the broad opinion is that perhaps in ’23 – or some members are talking of perhaps in ’22 now. So we’ll have to see how they decide. I think this is one of the positive outcomes of the experience of all central banks during the taper tantrum: the forward guidance given by the US Fed is extremely important for global monetary policy stance across central banks. The taper tantrum created a situation where there was a sudden surprise pronouncement which came from the Fed, and it didn’t materialize eventually, but it created huge amount of ripples.

As far as I understand, this time the US Fed is also very conscious to give enough forward guidance to global markets and to other central banks. So, we expect the US to give enough advance notice. In any case, so far as India is concerned, our forex reserves provide that kind of buffer, which should insulate any impact of spillover on our situation to the maximum extent possible.

TANVIR GILL: The Bank of Korea announced its first rate hike today. Brazil has gotten out of the gate, Russia has done so as well. As some of the key central banks, outside of the Fed, look at exit policy, are you concerned about capital outflow pressure because of rate differentials?

SHAKTIKANTA DAS: No. In fact, the capital inflows into India are continuing to be very steady and you would have seen the rupee has indeed appreciated over the last few weeks. Recently, we had a spate of IPOs in the domestic market and that led to a lot of inflow of foreign currency, particularly dollars, into India.

The bulk of the inflow that is happening in India today is in FDI, which is of a durable nature. The inflows may moderate to some extent, but inflows remain steady. And most of the inflow is coming in through FDI for a variety of factors. I’m not going into that, but we are getting large FDI inflows, which should continue to be steady.

TANVIR GILL: On fiscal support, will the G-SAP program – which is the government Securities Acquisition Program – run after September to support the bond market or will inflation risks mean that the RBI steps back on bond purchases?

SHAKTIKANTA DAS: The current G-SAP programme is up to the end of September. Now, on what our approach will be, you will have to wait for the next monetary policy statement, which is due in the first week of October.

Before that, there is still one month and 10 days to go. So, we will remain watchful, and we will decide and announce at that time. It’s not possible for me to prejudge this issue at this point, because frankly we have not decided. It will depend on so many developments and factors and how it plays out in the next 30 or 40 days.

TANVIR GILL: One question on the banks and not just in terms of accelerating credit creation: What more can be done on that front but also in managing asset quality pressures? What can you tell us about the state of the banks, because some of those moratoriums are expiring at a time when businesses are still struggling with cash flow pressure?

SHAKTIKANTA DAS: The moratoriums have ended. The RBI gave a moratorium for six months, which ended in August. Then the Supreme Court ordered an asset classification standstill, which ended in the third week of March. So, there is no moratorium prevailing.

The restructuring, the resolution schemes which we had announced, they have all concluded on the 30th of June 2021, except the MSME sector, where we announced some fresh measures on 5th of May, 2021 that are still in operation. But that will not have a large impact on the banking sector.

India’s banking sector entered into the pandemic in a far better position than the situation two years or three years prior to that, if you look at the numbers on 31st March, 30th June, I have the figures up to 30th of June, 2021. In fact, at the aggregate level, the CRAR of scheduled commercial banks is about 16%. The provision coverage ratio of all the scheduled commercial banks at the aggregate level – if I remember correctly – is about 68%. And the GNPA on 30th June was 7.5%.

We have in our financial stability report given certain projections about the NPA situation, we are quite confident at this point of time that the outlook with regard to non-performing assets or bad assets are within manageable limits. So, the Indian banking sector looks stable at the moment. The outlook also looks stable. Deposits, bank deposits have been growing at the rate of 10% over the last one year. Now, this is at the aggregate level: within that there could be some stress in one or two institutions, but as I have said elsewhere earlier, we have really tightened and improved our supervision process.

We know exactly where the problem is, and our teams are constantly engaged with the management of those banks to take necessary corrective measures. I just give one example. We are no longer just looking at the overall broad numbers of the financial parameters of the banks – the figures I mentioned, that is the NPA (non-performing assets), the CRAR and all that. We are also looking at the business models, we are also looking at emerging stresses in certain sectors in the portfolio of the banks. Whenever we find that a bank is overexposing itself to a particular sector, or that the stress in a particular sector is increasing, we immediately interact with the bank and bring it to their notice that this is one area of major concern for us and the management of the bank should address this area and take necessary corrective measures.

So, it’s a constant process which goes on aggregate level. The banking sector looks very stable at the aggregate level, while at the individual entity level, there may be problems in one or two entities. But there also we are fairly confident that we are engaged with the management of those banks and we will be able to deal with it.

TANVIR GILL: We are moving towards the end of the interview and just have a couple more questions for you. The RBI is planning on introducing a digital currency in a phased manner. Could you share some more details on when we can expect the test pilot test to begin and how much time for the rollout?

SHAKTIKANTA DAS: It was articulated earlier that, let’s say end of the year, by December or so, we should be able to start some kind of pilot exercise. We are being extremely careful about it because it’s a completely new product, not just for RBI but globally.

So, the first thing is the security of the digital currency and integrating it that is very important. The possibility of cloning, all that should be avoided. What impact will it produce on the financial sector? What impact will it have on monetary policy? What impact will it have on currency in circulation? We are examining all those aspects.

Our teams are also working on the technology, we have a choice between a good digital distributed ledger technology (DLT) or a centralized ledger. There are also central banks that are starting the exercise at the wholesale level and then going into retail. We are examining that aspect: whether we should adopt wholesale and sequentially go to retail later on, or should we also start in a localized area with retail plus wholesale? Various options are under examination. And whether the currency should be issued directly by the central bank or if we should issue it through the banking system, that is also under examination.

But teams are working. I think by the end of the year we would be in a position perhaps to start our first trials.

TANVIR GILL: We wish you the very best, because that’s a growing debate around the world in terms of rolling out CBDCs, at a time when there is so much happening by way of increasing adoption for cryptos.

Governor, how are you thinking about regulation for cryptos? We actually just touched base with the Governor of Bank Indonesia a few days ago about the regulatory environment. Indonesia, of course, is thinking about a crypto trading tax. So what shape and form could regulation look like for cryptos in India, where adoption is also growing?

SHAKTIKANTA DAS: You’re referring to private crypto. At RBI we have major concerns around private crypto from the point of view of financial stability. There are huge amount of risks that impact on financial stability, and we have shared our concerns with the government. So, the government will take the necessary policy decision in that regard.

Where the technology of crypto is concerned, for blockchain or DLT – distributed ledger technology, that’s a different thing altogether. I mean, the technology of blockchain DLT can grow and will grow irrespective of private crypto. This technology does not need a private cryptocurrency to grow. It can grow on its own. In fact, it is already being used by various corporates in India, and we are also working on that. But on private cryptocurrencies, we have major concerns because it has impact on our financial stability, and I’m not the only central bank governor talking about it. Several others have also talked about it – the Bank of England, even the US Fed and several other central bank governors.

TANVIR GILL: By when can we see a regulatory framework being put in place? The reason why I’m asking you this is because we just came across a report that highlighted how India and Vietnam saw the highest amount, or the most significant adoption, of cryptos through the course of the last 18 months. Clearly, this product is moving very quickly, not just in trading circles, but also in the real economy.

SHAKTIKANTA DAS: It’s for the government to decide. We have shared our viewpoint with the government, it is for the government to decide, I think it is under consideration in the government.

TANVIR GILL: The world has seen governments step up fiscal policy measures to support monetary policy in this next leg of the pandemic. Is that what we can expect from India as well, where the RBI has done its bit and now the onus is on the government to stimulate growth?

SHAKTIKANTA DAS: Well, I cannot speak for the government. The government has announced several packages of fiscal relief during the last one and a half years, and whenever we have any thoughts regarding fiscal policy support, we do share them with the government. But we leave it at that, because it is for the government to take into consideration, determine their interest and priority, and announce measures. So, this is an area on which I will not be able to comment.

But government has provided fiscal support and relief in a very sequential and calibrated manner over the last one and a half years. And I do believe that we have not seen the last of the government fiscal support measures. There could be many more, but again, I’m in no position to say with finality as to what is likely to happen.

TANVIR GILL: Before we wrap up, it’s been a tough period for you and for your team working around the clock or from quarantine facilities to serve the economy. What are your reflections when you look back at the time gone by, and where does that leave you with regards to the future because the viruses still out there?

SHAKTIKANTA DAS: The life of a central banker is never a dull moment because there are challenges emanating almost at regular intervals. But I must say that the entire team at the Reserve Bank of India has worked notwithstanding the challenges and the restrictions of lockdown. I think throughout the pandemic and right from the beginning, our teams in the RBI have worked very hard. It has been a team effort, and we will always try our best. We always make our best endeavour to identify the emerging challenges and be ready to deal with them in a proactive manner. And that will be our approach in going forward.

TANVIR GILL: Would we see you continue to oversee India’s monetary policy execution, as your term comes for a review in December?

SHAKTIKANTA DAS: I don’t know. Not for me to comment on that.

TANVIR GILL: All right, Governor, we leave it at that. Thank you very much for patiently answering all our questions. Thank you very much for this CNBC Exclusive.

SHAKTIKANTA DAS: Thank you very much for also inviting and having me on your show.

Edited excerpts:

Since the last monetary policy statement, have you seen any positive signs in the economy?

Whatever I said in my last interview, by and large, holds good even today. There are signs of recovery; there are signs of some of the fast moving indicators improving.

Passenger vehicles, sequentially, have improved marginally. Several of the fast moving indicators that include GST collections, e-way bills, railway freight, have improved over the position a month ago.

Manufacturing PMI has come back to the expansion zone, as per the latest data. Services PMI is still in the contraction zone. Though below 50, it is sequentially better than the previous data.

So, on the economic activity and the revival front, whatever was stated in my statement on August 6, holds good and it is showing the kind of momentum and revival we were expecting. The latest inflation print for July is also on expected lines. We expected it to moderate from a high of 6.3 per cent in May and 6.26 per cent in June. It has now moderated to 5.6.

So, therefore, by and large, things are on expected lines so far. But having said that, we are constantly watchful of the situation because things can change rapidly.

Your 5.7 per cent CPI inflation projection for FY22 is very close to the MPC’s upper tolerance level. You also said inflationary pressures are transitory. Is there a risk in following the “look through” approach of the other central banks on inflation?

Now, first thing is that our monetary policy is determined primarily by domestic factors. We do watch the kind of stance or policy the US Fed or the ECB or the central banks of other advanced economies and the emerging market economies take. We do keep a watch because that has certain spillovers to our economy also. But I would like to re-emphasise that our monetary policy is determined primarily by domestic macroeconomic considerations. At this point of time, I would like to highlight three points.

One, the process of economic revival is very delicately poised. And ever since the pandemic began, we have carefully endeavoured to nurture and revive the process of growth. We have provided congenial financial conditions in the financial markets. The bond markets and the money markets, which were almost frozen last year, in March and April, we de-freezed that. Not only that, we revived the activity in the bond market. Last year (FY21), the corporate bond issuances were higher than the previous year. Each sector or sub-sector witnessed temporary shocks. But the activities, broadly speaking, in the financial markets revived, thanks to the kind of policy the RBI has adopted.

Apart from the financial markets, there is the larger real economy. We have contributed a lot to reviving the real economy also. So, together with the government policies, the fiscal policies and the monetary policy, we have ensured that the real economy also kept functioning. We have endeavoured our best to see that the revival of economic activities is nurtured. So, at this critical time, anything that we do has to be very carefully calibrated and well-timed.

Two, with regard to inflation, as stated in the MPC and the Governor’s statements, we do expect the inflation spike to moderate in the coming quarters. Currently, the inflation is largely driven by supply-side factors. So, we should give the supply-side factors some chance and some time to correct themselves and restore the demand-supply balance.

Three, it’s an extraordinary situation that we are dealing with and the situation can change in no time. On April 7, when I made my monetary policy statement, the things looked so good.

But on May 5, I made an unscheduled announcement of measures because in that one month, infections had suddenly surged. So, therefore we have to be careful.

It is also the prime responsibility of the RBI to maintain financial stability. So, we don’t want to do anything hastily which may undermine financial stability in the medium term.

We need to wait for the growth signals to become more sustainable. We need to see that the growth signals, the economic revival, you know, the fast moving indicators are not just fast moving, but take some roots. So, the process of revival becomes more sustainable.

All that I am saying is that any policy action by the RBI, particularly monetary policy action, has to be very carefully calibrated and well-timed.

So, from the consumption point of view, what more can be done?

Our responsibility is to provide congenial financial conditions to create an ecosystem where the economic revival and restoration of growth will be assisted. And credit offtake is just one segment. We took various measures last year such as the LTROs, the TLTROs and liquidity support to Nabard, NHB, and SIDBI. And then we announced liquidity support to the stressed sectors, identified by Kamath committee, to the healthcare sector and the contact intensive services sector.

So, we are doing whatever is in our domain and it will definitely contribute to the creation of aggregate demand.

Demand creation is only one of the determinants of monetary policy, not the sole one. Monetary policy also takes into account several other aspects. For example, when we reduce the rates or take an accommodative stance and the market rates come down, it gets reflected in the G-Sec segment which, in turn, transmits to the bond markets. It also translates itself into the interest rates adopted by the banks. The housing loans are at an all-time low in several years. And naturally, several experts have told me that the revival of activity in the real estate sector and, in particular, in the housing sector, has been largely facilitated because of the RBI’s monetary and liquidity policies.

We are providing an ecosystem and I think it seems to be working. If you just pick up one of the items and say that it doesn’t work, well, it may not be working. I am not saying that it works everywhere because demand revival will depend on so many factors. Aggregate demand is still low. There is still a lot of slack in the economy; it is catching up.

All the policies the RBI has taken have worked over the last one-and-a-half years and they continue to work even now. That is why I have used the word — should we pull the rug? Should we reverse now? Should we change course now? Changing of course has to be very, very carefully done because there is a larger economy outside. The RBI being an institution responsible for financial stability in the country, we have to be very mindful of that. Even monetary policy says, the Act also says, that target 4 per cent inflation, while keeping in mind, the objective of growth. And RBI is a full service central bank.

Though you have flooded the market with liquidity, credit demand is tepid and there are pressures on the NPA front. So how do you deal with this situation?

There is credit demand in certain segments. For example, I mentioned about retail housing loans. But yes, in terms of aggregate numbers, bank credit growth is about 6 per cent. A point to be noted is that the liquidity is not just coming out of the RBI injecting liquidity through G-SAP or through TLTRO. Liquidity is also coming out of our forex interventions to maintain the stability of the rupee. We have to do that intervention.

In January this year, we normalised our liquidity management policy. In February 2020, we released our liquidity management policy in which we said that this 14-day variable rate reverse repo (VRRR) operations that we do is the standard liquidity management operating instrument. . In January this year, we started with ₹2-lakh crore of absorption every 14 days. Now, every fortnight we are increasing it by ₹50,000 crore. So, by end- September, the size of VRRR — the fortnightly auction size — will be ₹4-lakh crore.

We have already started normalising our liquidity operations and I would like to emphasise normalising. It is different from draining out liquidity because VRRR money also remains a part of the surplus liquidity. Even at the end of September, with ₹4-lakh crore of VRRR, the system liquidity will still be in the order of about ₹4-lakh crore at least. Therefore, normalisation of liquidity management operations has commenced and, going forward, the evolving macroeconomic situation will determine our future approach and how we deal with it.

But aren’t NPAs getting masked due to the loan restructuring?

They are not getting camouflaged. Because of the moratorium followed by the Supreme Court stay on asset classification, which got lifted in the third week of March, the position was not clear. But by March 31, we had a clear picture of the NPA situation. For restructuring, we had given a time limit till June 30. All the cases, which had to be restructured have been restructured. We have the exact numbers with us and the situation with regard to NPAs is definitely well under control.

Everybody talks about relief for borrowers but no one talks about the depositors, who are getting negative real interest rate. Why is it not a concern?

There are two points. First, it is a trade-off and you have to do a balancing act. On the one hand, the legitimate desire of depositors to get higher interest rates and, on the other hand, the legitimate requirement of business and industry is to get loans at a more reasonable rate to carry on with business activity. During the pandemic, the balance naturally tilted somewhat in favour of economic activity because economic activity has to go on, otherwise thousands of people will face a situation of zero income.

This aspect had to be given importance and that is what we have done over the last year-and-a-half. It’s a trade off and the trade off will depend on the prevailing situation — the situation that prevailed in the last one-and-a-half-years or even a little before, because we had started the rate-cutting cycle prior to the pandemic. In the last one-and-a half or two years, the balance has tilted somewhat in favour of keeping the lending rates low.

Second, the small-saving schemes, which are offering higher interest rates, should be seen as a kind of a fiscal support being provided by the government to the depositors. The rates that are prevailing with regard to the small-saving schemes are much higher than the Shyamala Gopinath committee recommendation.

Depending on evolving macroeconomic conditions, we definitely keep in mind the requirement of depositors and with regard to regulation and supervision of the banking sector, the interest of the depositors is of highest importance

Professor JR Verma said the reverse repo rate should not find the mention in the MPC and only the Governor should speak about it. Your thoughts on this?

We released the Report on Currency and Finance or RCF in January, which focused on monetary policy. There, it has been explained that the reverse repo rate is a part of the RBI’s liquidity management toolkit. It is not in MPC’s domain. It is the RBI which decides the reverse repo rate.

Second, if you look at all the MPC minutes from 2016, in every one of them, the reverse report rate is mentioned. We have to maintain consistency with the past trend. Also, the repo and reverse repos are the two supporting pillars of the monetary and liquidity policy approach of the central bank.

So for the sake of consistency and completeness of the monetary policy statement, that it is a statement of the committee and not the Governor’s statement, the reverse repo is also mentioned. But it is well understood that reverse repo is decided by the RBI.

There is the feeling that the RBI is entering a dangerous territory by trying to duel with the market in trying to manage the yield curve. Your thoughts?

Primarily, you are asking if we are interfering in the market? Right through the pandemic, even before and more during the pandemic, we have tried to be as transparent as possible. Therefore, I explicitly stated that evolution of the yield curve is a public good. And why I said and I have said it earlier also, the G-Sec yields act as a benchmark for the cost of borrowing in the market. And in a situation that the RBI was confronted with following the onset of the pandemic, we had to keep the markets running. We said what is important is orderly evolution of the yield curve and towards that we give very specific communication. We gave forward guidance. We also backed it up with our actions in terms of supporting the market with liquidity. So it was not just our communication.

It was also forward guidance. It was time-based guidance, it was our action, in terms of announcing TLTRO support, G-SAP, doing OMO or operation twist and it was also in terms of signals that we were giving to the market sometimes through devolvement or cancellation of auctions. It is not to subjugate the market, it is only to ensure that the yield curve has an orderly evolution and it evolves in an orderly fashion which is reflective of the fundamentals of the macroeconomic conditions. That is our endeavour. All our actions have been very transparent; it was towards achieving this orderly evolution of the yield curve. The objective behind it is to ensure better monetary policy transmission.

I think the market and the central bank need to understand each other better. There is a congenial atmosphere prevailing now. At times, there might have been some devolution or cancellations but that was more to give a signal. Suddenly, when you see the yields going up steeply, naturally, we were not in a position to accept. And we are the debt manager of the Government…Historically, last year saw the highest-ever borrowing by the Government of India and the State government at about ₹22-lakh crore. We managed that in a very orderly fashion. Our effort is to always manage the government borrowing at a low cost and minimising the rollover risks. So, there is no duel.

The issue starts when you are trying to artificially rein in rates to your comfort level…

The market players are independent entities; they take their own decisions. We keep on giving signals and it is not as if every bond auction we have cancelled or devolved… From time to time, we take certain measures towards the objective of ensuring the orderly evolution of the yield curve. I again and again restate that point. So, towards that objective, we do intervene from time to time and measures like the G-SAP or the Operation Twist or the OMO, they are more to support the market players.

There are calls for using the huge forex reserves for infrastructure development or recapitalisation of public sector banks. What do you think of these kinds of demands?

Such expectations are not new. They have come earlier also. Our forex reserves are not emanating from current account surplus. We are still a current account deficit country. Our forex earnings are not the trade surplus, it’s not from the current account surplus. That is the major difference between our foreign exchange reserves and the reserves of other countries, which have created sovereign wealth funds. Secondly, much of it has come through capital flows.

Capital, which flows in, can also flow out. That also has to be kept in mind. And the purpose of building a forex reserve is to provide a buffer for the domestic currency markets, a buffer for the domestic financial system. In times when international factors turn adverse, or when due to international policy action like US Fed tightening or some other international development, when there is a reverse flow, it is the forex buffer which helps, which gives stability to our currency and stability to our financial system. Reserves are essential, they’re essentially meant to ensure stability of the domestic currency and financial markets. They have a certain role and they should play that role.

So, you prefer that the reserves should remain untouched?

Yes, because all of it doesn’t belong to the country. For a capital flow somebody has created or invested here, there is a liability outside.

The Government says it will go by the RBI’s advice on cryptocurrency. What are your thoughts on that and the central bank digital currency?

I have articulated it earlier. We have major concerns around private cryptocurrency from the point of view of financial stability. Private cryptocurrency is different from distributed ledger technology (DLT) or blockchain. They should not be mixed up. DLT or blockchain technology is nothing new. It’s an open source technology. It is being used even today by several corporates for their business operations. The technology part can continue to be used and exploited without a private cryptocurrency. You don’t need a private cryptocurrency or a private cryptocurrency market to support the growth or utilisation or exploitation of that technology. The technology is well known; the technology has been there; the technology is being used; and the technology can and will grow without private cryptocurrencies. We need to differentiate between both. A private cryptocurrency which is traded is our concern.

The cryptocurrency market is in chaos and all sorts of players are coming. Shouldn’t the RBI address this issue?

We have conveyed our concerns to the government and I think the matter is under consideration. So, I would expect some policy action to come from the government side.

But in the meanwhile, would you like to use the levers that you have in the commercial banks to cut off flow into these?

We had issued a circular which the Supreme Court struck down. We issued a circular on May 31 in which we clarified that banks cannot refer to that earlier circular because that has been already struck down. They cannot take action on the basis of a circular already struck down by Supreme Court. And in the second paragraph, we have mentioned as a guidance to the banks that they are required to follow all the due diligence requirements with regard to KYC and other aspects while opening an account, including accounts for doing crypto business. That is the only guidance we have given. It is for investors who are now investing to sort of be very careful.

When will retail participation in government securities via Retail Direct Scheme start?

We have already announced the guidelines last month. The technology platform is almost getting finalised. I would not like to give a timeline but the technology platform is in advanced stage of finalisation. For any new platform we create, we have to do a lot of dry run, a lot of testing, retesting, so that after it is launched, it will not face any glitches. And the customers should not be put into any inconvenience.

Small finance banks want to turn into universal banks. Your thoughts?

With regard to full service commercial banks, we have guidelines in terms of capital, networth and it is on tap. Anybody can apply to become a full service or scheduled commercial bank, including SFBs. And if the SFBs meet the requirements — all the financial parameters and also the fit and proper test — it is open and anybody can apply. It’s an emerging area. So far, no SFB has applied to become a universal bank. Hypothetically, if some SFB wants to become a universal bank, it is vacating some space. And in any case there is still more space for new SFBs to come.

So, new players will come in. It’s a dynamic field. If somebody vacates a space, either one of the existing players or new players will fill that vacuum. I would also like to draw your attention to the report of the expert committee on urban cooperative banks, which the RBI released in the public domain, inviting comments and observations from all the stakeholders.

One interesting thing that the report says is that they are calling it neighbourhood banks of choice. UCBs should eventually become the neighbourhood banks of choice. That is a very good signal that the committee has given. We want the UCB sector to function in a much more robust manner, much more professionally. Then there are SFBs and scheduled commercial banks or universal banks.

Are there any measures that the RBI is looking at to ensure that India is included in the global bond index?

Both the government and RBI are in constant dialogue with the bond market index entities. It’s a process and it’s still going on. We are still in dialogue with them. There is also Euroclear for international settlement of bond trading. That is also parallelly going on.

In the last one-and-a half years, what was the toughest decision you took as RBI Governor?

It is very difficult to single out because for any central bank, surprises are always there. But the question is how big is the surprise. The Covid-19 pandemic has been a big surprise for every one under the sun — not just for the central bank in India, but for those across the world, for governments, for people. So it’s very difficult to say which is the toughest single decision. But it’s a part of the job, we go on.

April 14, 2015

Dear All

Welcome to the refurbished site of the Reserve Bank of India.

The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.

With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.

The site can be accessed through most browsers and devices; it also meets accessibility standards.

Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.

Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.

Thank you for your continued support.

Department of Communication

Reserve Bank of India

Next

Ladies and Gentlemen. Warm Greetings. At the outset, let me thank India International Centre for hosting this very important session on building a resilient financial system, when the resilience of the society itself is being tested by the Covid-19 pandemic. At a broader level, resilience is defined as the ability of a system, community or society exposed to hazards to resist, absorb, accommodate to and recover from the effects of a hazard in a timely and efficient manner, including through the preservation and restoration of its essential basic structures and functionsⁱ. I am confident that, we, as a country, will resist, absorb, accommodate to, and recover from the effects of Covid-19 very soon.

Meaning of Resilience of Financial System

In the context of financial system, a resilient financial system is one which is able to absorb the impact of endogenous shocks it is exposed to, rebound quickly to the original condition or adapt to new environment, and continue to perform its role of providing financial services. This definition of resilient financial system is different from a stable financial system. A stable financial system is one which is able to absorb shocks, whereas a resilient financial system will be able to adapt and reconfigure itself in response to a shock, in addition to absorbing itⁱⁱ. To put it simply,

“..a robust system will be one designed to withstand a once in 100-year event for example, an approach used in risk management. In contrast resilience makes no assumptions about the magnitude of possible shocks, but rather looks to build systems that can deal with the entire range of shocks…..”ⁱⁱⁱ

As such, our efforts should be focussed on building a financial system which is not just stable, but also resilient, as the type, source, magnitude and frequency of shocks are turning out to be highly unpredictable and non-measurable to a significant degree. Accordingly, focus of regulation and supervision of financial system should be to make sure that financial system as well as individual financial institutions are not just able to absorb the shocks, but are able to adapt to the changed circumstances.

Now, I would like to discuss some of the critical behavioural/cultural issues which, if handled appropriately, have the potential to tremendously improve the resilience.

Moral Hazard and Resilience

Moral hazard, rather absence of moral hazard, plays a substantial role in building a resilient financial system. Why would a bank invest in building a robust risk management system if it is aware that when push comes to shove, taxpayers’ money would be used to rescue them. Shareholders of a bank will have incentive to seek better governance and risk management capabilities from the management of the bank only if their investments are at risk. Privatisation of profits and socialisation of losses is antithetical for building a resilient financial system. Similarly, employees of a bank should also have skin in the game.

Resilience is a Collective Effort

Building a resilient financial system is a collective effort and cannot be left to regulators alone. While the regulators contribute majorly by framing appropriate regulations, a tick box approach to risk management by the banks would mean that the market’s wisdom is replaced with regulator’s wisdom. Regulations provide for minimum requirements to be met by all regulated entities. Hence, a resilient financial system requires contribution from all stakeholders and market discipline (i.e., disciplining by depositors, disciplining by borrowers and disciplining by investors) is a necessary condition to achieve a resilient financial system.

Lemon Problem – Information Asymmetry

Another important feature of building resilience in the financial system and improving the credit flow is reducing the incidence of ‘lemon problem’, which would require improvement in governance at the borrower level also. If the lender cannot distinguish between the borrowers of good quality and bad quality (the lemons), he will only make the loan at an interest rate that reflects the average quality of the good and bad borrowers. The result is that high-quality borrowers will be paying a higher interest rate than they should because low-quality borrowers pay a lower interest rate than they should. One result of this lemons problem is that some high-quality borrowers may drop out of the market, with what would have been profitable investment projects not being undertaken^iv. The ‘lemons problem’ also impedes banks’ ability to anticipate risk build-up in their portfolios. Borrowers are probably the first ones to see early signs of difficulties in their respective segment. When they do not pass on the information to their lenders fearing that the lender may refuse new loans or tighten the conditions of existing loans, lenders ability to identify risks early is severely hampered.

Tools to Ensure Resilience

Having explained the concept of resilience, let me delve into the tools required to achieve resilience in the financial system. The 3As model of resilience, though originally conceptualised in the context of climate change and disaster management, provides a useful template. The 3As of resilience are: Anticipatory Capacity, Absorptive Capacity and Adaptive Capacity^v. Anticipatory Capacity could be thought of as the ability of the financial system and its constituents to identify and measure emerging risks as early as possible and mitigate the risks by taking corrective actions. Absorptive Capacity is the ability to withstand the losses which may arise due to shocks and cannot be mitigated or avoided. Adaptive Capacity helps in adjusting to the new realities, be it changed regulatory/economic conditions or a new competitive landscape.

Dimensions of Resilience

Resilience of the financial system can be tested from many dimensions, viz., financial risks, operational and technological risks, competitive risks, climate risks etc., and the financial system is required to anticipate, absorb and adapt to the same.

Financial Resilience

The ability of banks to anticipate and absorb financial losses during a crisis after crisis remain solvent and retain their ability to lend is a measure of financial resilience. The Reserve Bank strives to ensure financial resilience of the institutions that are regulated by it by prescribing a set of micro-prudential regulations, viz., minimum capital requirements, provisioning norms for bad debts, liquidity norms, etc. Additionally, the Reserve Bank also resorts to macro-prudential measures when there is a system level risk build-up, which may not be fully captured by the micro-prudential regulations aimed at resilience of individual institutions.

While the prudential norms are aimed at improving the absorptive capacity of the individual institutions as well as the financial system as a whole, the anticipatory capacity of the banks requires to be strengthened by improving the risk governance in banks. The risk management function of financial institutions requires strengthening to be able to identify risks early and measure them with reasonable accuracy. It is important that the risk assessment process should include ongoing analysis of existing risks as well as the identification of new or emerging risks, as risks faced by financial system changing^vi. Banks, which are able to anticipate risk ahead of others, will also be able to raise capital ahead of others when the cost of raising such capital is low. Further, banks with superior risk identification capacity may be able to better recalibrate their capital requirements and put capital to use in a more efficient manner.

In addition to identifying current and emerging risks, financial entities should also perform stress tests to quantify their risk under various severe but plausible scenarios. The stress test should feed into their decision-making process in terms of potential actions like risk mitigation techniques, contingency plans, capital and liquidity management in stressed conditions, etc.

While the anticipatory and absorptive capacity of individual financial institutions enhance their resilience, at the system level, the Reserve Bank has also enhanced its own anticipatory capacity by improving its supervisory process.

Operational and Technological Resilience

The Covid-19 spread and the public health responses to the pandemic, including the social distancing and lock-down measures, tested the operational and technological resilience of the financial system like never before. However, it’s a matter of great satisfaction that both the Reserve Bank and the financial institutions demonstrated tremendous operational resilience and ensured uninterrupted availability of financial services to the general public by putting in business continuity plans. The Reserve Bank ensured that payment systems were functioning normally and also monitored the availability of digital banking channels on daily basis.

Another equally important development, though not as sudden as the pandemic, that of growing reliance of financial institutions on technology. Resilience is now regarded as important as financial resilience, if not more important.

Even prior to the pandemic, the Reserve Bank has been focussing on ensuring cyber resilience of financial institutions. The Reserve Bank determines the cyber risk score for each bank using various key cyber risk indicators. The Reserve Bank has issued various instructions, viz., cyber security frameworks, cyber security controls for third party ATM switch providers, Reserve Bank of India (Digital Payment Security Controls) Directions 2021, aimed at improving cyber resilience of the system. In order to enhance the ability of top management of banks to appreciate the issues surrounding cyber resilience, certification / awareness program on cyber security was mandated for Board functionaries, Senior Management and of banks.

Competitive Resilience

Even as banks’ reliance on technology has grown by leaps and bounds, technology is also revolutionising the competitive landscape in financial system. Entry of BigTech firms and innovative Fintech players into the traditional domain of banks has already revolutionised the way financial transactions are carried out. Unbundling of banking services is a reality and will change the way banks operate. This will test the adaptive capacity of banks and other traditional financial firms. Unless traditional firms adapt to new ways of doing business, they may be marginalised very soon.

However, even while individual entities adapt to the new competitive landscape, at the system level it is imperative to ensure that heterogeneity is preserved. A homogenous financial system will be less resilient and prone to systemic crisis if the underlying economic conditions change. Hence, it is important that the financial system consists of entities which follow different business models even while adapting to the newer ways of doing business.

Climate Resilience

Climate is fast emerging as a key risk driver for financial system. While insurance companies directly face the climate risk, banks are also required to take into account the climate risk more seriously. Climate risks can impact the financial sector through two broad channels, viz., physical risks (arising from specific weather events and long-term climate change) and transition risks (emanating from the efforts taken to address the climate change). The fallout could include deterioration of asset quality of borrowers in affected geographical zones; the impact on business models due to governmental/societal response to climate change; and long-term liquidity effects^vii.

Increased frequency of natural disasters and climate extremes have a direct impact on the operational resilience of banks, especially in the context of increased reliance on centralised technology platforms and data centres. There is a constant need to assess the climate risk and mitigate the same. In addition to mitigating operational risks arising out of climate extremes, there is a need for the financial system to move towards green financing, even while keeping in mind the developmental requirement of the country.

Resilience and Governance

In my view, what lies at the core of these three capacities (anticipatory capacity, absorptive capacity and adaptive capacity), which enhance the resilience of an entity, is a good governance framework. More often than not, excessive risk exposures, credit losses, liquidity problems and capital shortfalls stem from weaknesses in corporate governance, compensation policies and internal control systems^viii. While high-quality governance acts as a credible defense against risks, past experience suggests that weakness in corporate governance can cause failure of a financial system and may lead to financial instability. Several enquiries and studies have concluded that one of the significant reasons behind the Global Financial Crisis of 2007-09 was that of weaknesses in corporate governance at financial institutions. The world also witnessed failure of governance structures, which necessitated the overhaul of interest rate benchmark setting process. Given that the sources of future vulnerabilities are hard to predict, banks need to have robust frameworks of risk governance and management to identify and understand emerging risks and their potential impact on the firm. This remains one of the most important factors for bank resilience, given the ongoing changes in business lines, market practice, and financial technology that may test banks’ governance and risk management^ix.

Further, corporate governance is increasingly a major factor in the investment decision-making process. Poor corporate governance is often cited as one of the main reasons why investors are reluctant, or unwilling, to invest in companies in certain markets. It can also explain why, in some economies, the shares of many companies trade at a significant discount to their true value. Even better governed companies are “tarred with the same brush” almost a case of guilt by association^x. As such, banks’ ability to raise capital, which is important to improve their absorptive capacity, is also a function of strength of its corporate governance practices.

Good corporate governance in financial intermediaries is also an important determinant of efficiency in allocation of resources and protection of stakeholders’ interest (depositors, other customers, shareholders, etc.).

Governance quality depends substantially on two elements – governance structures and culture. While it is possible for the Government or The Reserve Bank to enact laws/regulations to prescribe governance structures within a bank, appropriate culture is something that cannot be legislated. Banks and the Boards have to develop the desired culture within the organisations. A sound risk culture bolsters effective risk management, promotes sound risk-taking, and ensures that emerging risks or risk-taking activities are recognised, assessed, escalated and addressed in a timely manner^xi. While culture influences the decision making within an organisation, it is hard to assess. Nevertheless, a structured framework should be put in place to assess the risk culture within banks and incorporate the assessment into the supervisory rating of the banks. The focus is on the bank’s norms, attitudes and behaviours related to risk awareness, risk taking and risk management^xii.

Another important element of governance framework, which has significant effect on resilience of financial institutions, is the compensation policies. A compensation structure, which rewards short term risk taking, without consideration for long term risk or negative externalities, may endanger the resilience of the individual institutions as well as the systemic resilience.

At the same time, inadequate compensation also has the effect of not sufficiently incentivising the top/senior management of financial institutions in developing the capacity of the financial institution to anticipate, absorb and adapt to various shocks faced by the financial institutions.

To conclude, it may not be an overstatement to say that financial systems in India and other jurisdictions are witnessing rapid shifts in the operating environment, characterised by changing competitive landscape, automation and increasing regulatory/supervisory expectations. The source, nature, frequency and magnitude of risks are also continuously changing. The Reserve Bank has put in place various regulations to improve the governance in banks and make them more resilient. In addition, banks have also made improvements in their risk management capacities. Yet, the changing operating and risk environment requires banks to be vigilant, strong and agile so as to identify risks early, absorb the shocks and be able to adapt to the newer ground realities. I am hopeful that banks and other financial institutions in India will rise to the challenge, continue to demonstrate their resilience and be able to contribute to a 5 trillion economy and beyond.

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April 14, 2015

Dear All

Welcome to the refurbished site of the Reserve Bank of India.

The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.

With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.

The site can be accessed through most browsers and devices; it also meets accessibility standards.

Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.

Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.

Thank you for your continued support.

Department of Communication

Reserve Bank of India

Next