Banks cannot always rely on RBI money to support credit drawdown: RBI Governor Shaktikanta Das

Banks cannot forever rely on RBI money to support credit borrowing: RBI Chief

Mumbai:

RBI Governor Shaktikanta Das said on Friday that banks cannot continuously rely on central bank money to support credit drawdown and must mobilize more deposits to foster credit growth .

He said banks have already started passing on higher repo rates to their depositors and the trend is expected to continue.

“When there is a credit draw, banks can only maintain and support that credit draw if they have higher deposits. They cannot rely on central bank money on a perennial basis to support the credit draw…they have to raise their own resources and funds,” Das told reporters at the post-political meeting.

On Friday, the six-member Monetary Policy Committee (MPC) raised the repo rate by 50 basis points to 5.40% and also decided to remain focused on withdrawing accommodative measures to ensure that inflation remains on target going forward, while supporting growth.

It is the RBI’s third consecutive hike since May this year in its fight against inflation which has hovered above the central bank’s tolerance band of 4-6%. Inflation based on the consumer price index (CPI) stood at 7.01% in June.

In May, RBI raised the repo rate by 40 basis points and another 50 basis points in June.

As a result of these rate hikes, many banks raised their deposit rates to some extent.

RBI Deputy Governor Michael Patra said there was a very aggressive mobilization of deposits starting with bulk deposits.

“We expect deposit mobilization to catch up with credit very quickly,” Patra said.

During the fortnight ending July 15, bank credit increased by 12.89% and deposits by 8.35%.

Das said the most likely scenario is that the impact of the rate hike will be passed on through banks to deposit rates.

“The trend has already started. A number of banks have raised their deposit rates over the past few weeks and this trend will continue,” he said.

Speaking on the liquidity scenario, the governor said that the RBI will carry out two-way operations to deal with the current liquidity situation.

He said last month that there was a sudden cash squeeze for about three to four days due to very high GST and other tax levies, and so the RBI carried out a fine-tuning operation. repo injection with a three-day maturity.

“Our effort will be to make sure there is enough cash,” he added.

When asked if there was a concern about higher amounts on bad debts being written off by banks, versus recoveries and upgrading, Deputy Governor MK Jain clarified that he s These were technical and prudential amortizations without renouncing the right to recovery.

“All of these loans are fully provisioned and that reflects prudence and a better balance sheet position,” Mr Jain said.

He said that over the past two and a half years, there has been a downward trend in write-offs and an upward trend in revaluation of non-performing loans.

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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