Saying that the Indian economy has remained resilient amid successive global shocks, RBI Governor Shaktikanta Das, on Wednesday, was optimistic that inflation is showing signs of moderation and that the worst is behind us. He highlighted the stability of the rupee, the real policy rate moving into positive territory, and that the banking system has exited from the ‘chakravyuh’ of excess liquidity without causing any disruption. Even as monetary policy transmission is picking up, the RBI will remain flexible and responsive to the requirements of the productive sectors, said Das. Following are edited excerpts from comments made by Das and Deputy Governors Michael Patra, Rajeshwar Rao, T Rabi Sankar and MK Jain at the post-policy press conference:

Q

How long can banks continue to balance the 400-500 bps gap between deposit and credit growth rates?

Patra: The difference has narrowed, but there is still a difference and it’s really up to the banks to mobilise deposits and make up the gap. They are doing so through CDs and reducing their non-SLR investments, but they need to mobilise deposits on their own to meet the gap.

Jain: There is an increase in the deposit side also. We have analysed the sources of funding, and we have seen that they are coming from deposits as well as the borrowings. The CD ratio for banks has increased a little, but is still reasonably within the range, and the LCR is still at a very comfortable level.

Q

What is the general preparedness of banks in transitioning to the ECL norms?

Rao: It is generally assumed that the ECL norms may be higher than what is there under the current approach, but that not may not be necessarily true in all the cases. If you look at the current position of banks, they are well prepared to absorb it. PCR ratios have improved to about 71.5 per cent in September 2022, compared to 68.1 per cent last year.

Q

Does the 6.4 per cent GDP growth target for FY24 look achievable given the external risks?

Patra: We recognise that the global situation may result in net exports becoming a drag on our growth and, therefore, there is a deceleration from 7.0 per cent in 2022-23 to 6.4 per cent in 2023-24. As of now, given the current projections of world output by international agencies, it looks achievable.

Q

What is holding you back from pausing on rates?

At this point a 25 basis point hike is considered appropriate, taking into account the mix of factors and the data that we have. We have also looked at the outlook, and at the current juncture, the MPC felt that a 25 basis point hike is very much warranted. Since we have moderated the pace of hikes, from 50 bps to 35 bps last time and now 25 bps, this gives us elbow room to assess the impact.

Q

With the liquidity surplus coming down, will you be able to manage the huge government borrowing?

Sankar: Market borrowing last year was considered high and it was managed smoothly. It will be managed smoothly this year as well. There is adequate demand and the markets are deep enough so we shouldn’t have any problem irrespective of the liquidity conditions. The net borrowing is about 7 per cent higher and gross borrowing is about 8 per cent higher compared to last year. Vis-a-vis the previous year, all these are extremely moderate.

Das: The net borrowing number last year was about ₹11.08-lakh crore, and this year it is ₹11.80-lakh crore on a expanded nominal GDP base.

Q

What is the rationale behind the G-sec lending and borrowing programme?

Sankar: One of the simple ways of lending and borrowing of securities is through repo markets, but some entities are not permitted such as insurance companies, but they have a lot of stock. Allowing lending and borrowing directly against securities, and not through the repo market, will enable them to lend and all this will add liquidity and efficiency and improve price discovery in the market.

Q

What will come first, the MPC changing its stance or monetary conditions not being accomodative?

It’s a kind of a chicken and egg question, so my reply is let the chicken decide. We cannot give any forward guidance of this nature. We watch all the incoming trends, and will take an appropriate decision at the appropriate time. We are quite open about with regard to our unwillingness to comment, because we don’t want to create unreasonable or unnecessary expectations in the market.