RBI governor Urjit Patel stays clear of queries on autonomy, Section 7

Despite a public spat between the Reserve Bank of India (RBI) and the government, the central bank governor Urjit Patel chose to remain mum on controversial issues such as autonomy, invoking of Section 7 of RBI Act in his nearly three-hour interaction with Parliamentary Committee on Finance in Delhi on Tuesday.

This was the first public appearance of the governor after RBI's marathon Board meeting on November 19 that ended on a conciliatory note with both the government and the central bank agreeing to work together on the number of issues such as transfer of reserves, easing of lending restrictions on weak banks, special schemes for the micro, small and medium enterprises and liquidity issues.

Even on questions like whether the central bank would relax the prompt corrective action (PCA) guidelines, the governor preferred to skip the questions.

Members also raised questions on whether he would ease credit to stressed sectors.

"On the controversial questions he preferred to skip, and said would give certain responses in writing at a later date," a parliamentary committee source said.

The meeting began with a presentation by the governor to the parliamentary panel on the economy and the NPA situation. The committee members wanted to discuss four main issues – the state of finance in the country, RBI's reserves, demonetisation and reorganisation of the central bank.

Instead of replying to the specific questions, the governor made a detailed 22-page presentation to the house panel, a copy of which is with DNA Money, where he painted a rosy picture of the economy.

On demonetisation, the governor said the long-term impact was transient and sector-specific, though it initially impacted the food prices. In the second half of 2017-18, monetary and credit indicators rebounded from the effects of demonetisation, and as the money supply was driven by the commercial banks, credit growth witnessed a revival from its historic low in March 2017 and re-emerged as a significant source of financing for the commercial sector, he said.

He told the committee that Rs 10,720 crore worth of currency yet to be returned post demonetisation to the banking system until June 2018 is classified as a liability of RBI. And all future exchanges of the currency will be done as per regulations of the government from this liability account, he said.

In the presentation, he said, "Monetary transmission from the policy rate to the banks' lending and deposit rates improved in 2017-18, facilitated by the demonetisation-induced slosh of liquidity, but it remained uneven across sectors and bank groups."

On NPAs, he said that the amount of bad loans were reducing and Insolvency and Bankruptcy code 2016 was helping in reducing the stressed assets.

"Gross NPAs of commercial banks went down to Rs 10.15 lakh crore at the end of September 30, 2018, after peaking at 10.36 lakh crore at the end of March 31, 2018," he said. The declining trend over the past two quarters is again reflective of the improving credit discipline.

"IBC 2016 was a watershed event towards improving the credit culture in the country. For a creditor, an asset in most cases is more valuable when it is a going concern and generates adequate cash flow as compared to the asset under liquidation," Patel said in the presentation.

"Overall, he was quite optimistic about the economy. He was happy with the credit growth of 15% and NPAs are reducing," said a source. The governor was confident of achieving economic growth of 8.2%.

Deputy governors N S Vishwanathan and B P Kanungo also attended the meeting along with the governor.

REPORT HIGHLIGHTS

• RBI governor paints rosy picture of economy, confident of achieving economic growth of 8.2%
   
• Makes a 22-page presentation to the parliamentary committee on finance
   
• Gross NPAs of commercial banks went down to Rs 10.15 lakh crore at the end of September 30, 2018 after peaking at 10.36 lakh crore at the end of March 31, 2018
   
• RBI governor said Rs 10,720 crore worth of currency yet to be returned post demonetisation to the banking system until June 2018 is classified as a liability