This refers to the report “Adaptive RBI policy can lift India’s growth 7.65%” ( July 31 ). While the government is struggling hard to bring in reforms to push growth, RBI, being the banking regulator, need to keep pace with the government for the desired results to materialise. Likewise, the government has to recognise the independence of the central bank to enable it to freely decide on monetary policy action as per the requirement of the economy. However, the proposal for framing the Monetary Policy Committee as per the new draft guidelines will certainly go against RBI’s freedom to decide on monetary issues. As such, the government must look at accepting the recommendations of Urjit Patel Committee to uphold the autonomy of RBI. The current favourable macroeconomic conditions, including the expected good harvest, falling crude and gold prices, portend a positive impact on current account deficit, and given the need to push the sluggish index of industrial production, credit and investment growth, RBI can’t step away from the need to cut rates. This will, no doubt, pave the way for a flow of capital into the market. RBI needs to be proactive in cutting policy rates to revive the investment cycle and improve the quality of bank assets (as servicing loans becomes easier), and also ensure a full transmission of previous rate-cuts done during 2015. A positive action is the need of the hour to attract further inflow of capital to the country.
Strengthening the eurozone
Apropos of the column “The eurozone’s German problem” (FE, July 28) Philippe Legrain is correct when he says that Germany’s beggar-thy-neighbour policies and the broader crisis response that the country has led have proved disastrous for the eurozone. In fact, seven years after the start of the crisis, the eurozone economy is faring worse than Europe did during the Great Depression of the 1930s. For the eurozone to thrive, stronger countries such as Germany have to help out weaker countries such as Greece. What the eurozone also needs is greater federalism, or perhaps a more flexible political structure in all the member nations.
PSBs must tackle NPAs
This refers to the financial results of 8 PSBs (during the first quarter of the current financial). These clearly indicate the disturbing trend of decline in their profits owing to their rising non-performing assets (NPAs). The key question is: Why are these banks not able to contain their rising NPAs? What ails their respective lending polices? Are they bypassing the prudential norms enumerated in Basel-III norms? In fact, RBI has been regularly warning them to be extremely cautious while lending. It is also gathered that these banks usually don’t insist on fully compliance with the basic KYC norms for the fear of losing a prospective customer of value. No wonder then that the list of such wilful defaulters is growing at a brisk pace. Let’s also not forget that these rising NPAs not only eat into their profits but their poor asset quality also cast aspersions on their ability to be the prudent banks. Needless to say that these PSBs can’t be allowed to survive on the regular financial oxygen supplied by the MoF.
SK Gupta, Delhi
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