"I think, the most immediate problem we have to confront is that of rising level of stressed assets in the banking system. Fortunately in the last quarter those levels of stressed assets tapered off or flattened out. But, it is too early to declare victory," he told reporters here after the central board meeting of the monetary authority.
Rajan, who has initiated a slew of measures, including asking banks to work together to spot and resolve asset stress early, said the remedy for this lies in "stronger governance actions" like clearing projects and growth numbers inching up faster.
"Growth bails out lot of past bad decisions. So I believe that as growth comes back, and I fully expect that growth will be stronger over the course of the year, that some of the bad assets will turn back performing," he said.
It can be noted that lenders, especially the public sector banks, are saddled with a high amount of asset stress due to a slew of problems including economic gloom, projects not getting cleared by the executive and also some judicial interventions like the ban on mining.
As of March 2014, total NAPs stood at a high 4.4 per cent for the system, with multiple analysts fearing it will go up further.
Commenting on the early detection and redressal of NPAs which incentivises banks to detect an issue early and also includes penalties for being late, Rajan said it is still early days for the system but bankers have informed him that promoters are finding it difficult to con the lenders now.
Meanwhile, even though he declined to offer a reaction on the Budget presented today saying he had not read it, Rajan said the central bank will be working in close coordination with the government on aspects like creating a new monetary policy framework which was announced by Finance Minister Arun Jaitley.
On the movement of the rupee and the level where the RBI would like the currency to be, Rajan said the rupee is holding on to a level currently, and RBI will not be "too interventional" in the market.
He, however, added that it will work towards reducing volatility in the currency in either direction.
On the concerns about the oil prices adding to inflationary pressures, Rajan said crude prices have stabilised after hitting a high of USD 116 a barrel and added that RBI will be vigilant on the issue.
With the funding needs of the infrastructure sector pegged to over USD 1 trillion during the ongoing 12th Plan period, Rajan underscored the need for developing right models to ensure credit flow to the sector.
The Governor added that RBI will soon be coming up with some guidelines which will make the '5/25 loans' to the infrastructure segment feasible.
"We are shortly going to come out with circulars describing how we will make feasible 5/25 loans to infra sector going forward. That is something on the cards," he said, addressing a Ficci Ladies Wing event later in the day in the Southern metropolis.
He added that banks need to improve on their project evaluation skills which will help during the due diligence stage for a loan proposal so that the loans are structured in such a way that there is no stress to the bank even if economic conditions worsen.