There will be no harm if the Reserve Bank of India cuts policy rates to support growth, said Diwakar Gupta, Managing Director and CFO, State Bank of India.

Since raising interest rates 13 consecutive times did not work in controlling inflation, lowering rates may not harm either, he added.

Gupta observed that inflation is due to inadequate response on the structural side.

Government “expenditure is not value-creating. Fiscal policy has to be re-oriented to control inflation,” he said at the Bombay Management Association’s 15th Finance Convention.

If expenditure is channelled towards creating infrastructure, then even higher deficit in the short run will not be a problem, he said.

Saving tips

It is essential for companies to build a “granary,” to face uncertain times. Organisations must shore up liquidity and risk management, said Gupta.

Exemplifying the problems facing certain sectors of the economy due to global slowdown, Gupta said units in the textile sector built up capacities between 2006 and 2008 when the going was good. However, since 2008, the demand from overseas has dampened affecting the fortunes of units in the sector.

SBI has restructured Rs 8,000 crore worth of loans to the textile sector. Another Rs 2,000 crore exposure in the sector has been categorised as bad loans. However, Gupta expressed the confidence that most of the textile units will turn around.

Banking licences

Gupta said the last time banking licences were given, it was believed that it will help increase banking penetration. However, this did not happen as envisaged.

He said if each new bank is given a mandate pertaining to financial inclusion and the regulator/ Government ensure that they adhere to it then new banks are definitely welcome.

“Competition is always good for the banking sector,” he said.

>ramkumar.k@thehindu.co.in

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