‘RBI will provide liquidity for monetary policy transmission’

‘We never waste a crisis. There will be learning and the supervisory tools will get better with each episode.’

IMAGE: Reserve Bank of India (RBI) Governor Sanjay Malhotra, third from left makes a statement on RBI Monetary Policy during the 54th Monetary Policy Committee (MPC) held from 7 to 9 April 2025, in Mumbai, April 09, 2025. Photograph: ANI Photo

Reserve Bank of India Governor Sanjay Malhotra and RBI Deputy Governors Swaminathan J, M Rajeshwar Rao, and T Rabi Sankar responded to a range of issues in the post-policy press conference:

Given that the real interest rate is at 200 basis points, do you think there was scope for a 50 basis point rate cut?
The RBI has guided that liquidity should be 1-1.5 per cent of net demand and time liabilities (NDTL).
Does the RBI want to give a comfortable threshold for liquidity?

Malhotra: I don’t recall 1.5 per cent. Looking at various studies, the real interest rate should be 1.1-1.9 per cent, so 1.5 per cent is plausible.

Insofar as the policy rate is concerned, we have changed the stance from “neutral” to “accommodative”.

As regards inflation, the average is 4 per cent. Next year we really don’t know.

For the calendar year, yes, it is below 4 per cent, but for the next quarter, for the first quarter, it is more than 4 per cent.

We will look at, you know, the evolving situation, as we have already mentioned. And this is our forecast and outlook for growth and inflation.

On liquidity, I have made a mention in the statement — without giving any numbers — that we will keep it sufficiently surplus.

I reiterate we will provide sufficient liquidity for monetary policy transmission.

I don’t want to give a number and you mentioned, you know, linking it to NDTL.

Could you please clarify the 1 per cent NDTL target? You say the goal is to maintain 1 per cent surplus liquidity in the system, which amounts to approximately Rs 2.7 trillion.

Malhotra: I would not pin myself down to 1 per cent, but that is the kind of range, or near about that range.

If more is required, we will do more. If less is required, we will do less.

The main aim, as I said, is to ensure a proper transmission of the regulatory instruments.

You have said you can’t possibly predict the way forward on rates. But, what is the chance of major central banks continuing to hold rates for long?
You have taken a shift with the stance, but will it allow us to cut further?

Malhotra: I said the impact of global tariffs and uncertainties on India remained a consideration.

However, we believe domestic inflation and growth will primarily drive our stance and policy decisions.

While we will remain vigilant on global developments, they will have a limited impact on India because our exposure on export and import, and interconnectedness with the global economy, especially compared to smaller economies and even larger ones like China, is much less.

Is there a shift in the RBI’s stance on co-lending?

Malhotra: I believe co-lending arrangements have helped in priority-sector lending (PSL). Now, what we are doing is expanding it to other segments outside PSL.

Currently it was the bank and non-banking financial companies (NBFCs) that could enter into this arrangement.

Now, two banks can enter into this arrangement as well.

Under this, the borrower gets the benefit of lower interest rates as banks get funds at lower rates and what they don’t have in reach is compensated by NBFCs. So, it is a win-win for banks and NBFCs.

Swaminathan J: We are expanding participants by extending this to all regulated entities. And we are also seeking to extend coverage beyond PSL.

There is also harmonisation of guidelines. As more players and segments open up, there has to be clear guidelines.

Can the RBI take action on auditors of IndusInd Bank?

Malhotra: I would not like to get into any individual entity or auditors. We have good systems in place to detect non-compliances and risks as early as possible.

And we take pre-emptive as well as corrective action wherever required.

Swaminathan J: We never waste a crisis. There will be learning and the supervisory tools will get better with each episode.

It’s our intention to minimise and, more importantly, ensure that customers remain protected even if accidents happen.

In each of the episodes we have taken adequate steps to ensure that customer inconvenience is minimal and customer money is protected to the extent possible.

Whenever such failures take place, we do risk mitigation to protect customers but also we direct boards to ensure that proper forensic and accountability studies are held so that whosoever — internal, external, or third-party service provider — is accountable, they will be covered and action will play out.

We are more concerned about rectification getting done as expeditiously as possible and there is no loss or inconvenience to customers.

This is something we deal with on priority and then we take up fixing people.

Feature Presentation: Aslam Hunani/Rediff.com