Wednesday, October 1, 2014

Is RBI pragmatic in it's thinking?

 The measures announced by the RBI in its recent policy review are a clear indication that it is not convinced of the measures on the part of the government to contain food inflation and the inflation will continue to remain high till March 2016 without giving any scope for adjustment of policy rates. While the arguments put forward by the RBI sound academically reasonable and acceptable perhaps but how long it can ignore its other statutory responsibility of supporting the economic growth is an issue to be sorted out by the Government. Unfortunately the understanding between the Government and RBI which had historically,  had a mutually reinforcing influence in deciding the fiscal and monetary policies had been becoming the thing of the past does not augur well for the economy is what is to be understood both by the RBI and the Government. The other regulatory steps particularly the reduction of the HTM category of banks’ investments and bringing in Urban Cooperative banks under LAF are welcome to strengthen the market. However, the haste with which the RBI plans to issue licenses to have Payment and Small banks in the field is not very convincing taking into consideration the not so encouraging performance of Local Area banks, Regional Rural banks, some of the old generation small banks and cooperative banks unless RBI wants one more head ache to add on to its Financial Stability Issues. Whether more Non Performing Banks are also  desirable along with ever increasing Non Performing Assets of banks is what RBI has to seriously consider.

T.V.Gopalakrishna    

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