Foreign banks operating in India have been demanding more liberal norms for priority sector lending since they do not have an extensive branch network and access to rural areas.
“We are in the process of reviewing the priority sector norms with the finance ministry,” Rajan said at a press conference after the RBI’s board meeting.
According to the RBI regulations, foreign banks with 20 branches or more in India have a target of 40% priority sector lending of their total lending. It is on a par with all domestic banks in the country. Foreign banks with less than 20 branches, however, have a priority sector lending target of 32%.
On the country’s economic growth, the governor said RBI was expecting over 6% GDP growth rate in the next financial year. “We expect, in the next fiscal, it to be above 6%.”
Rajan said that an interest rate cut would not by itself lead to a higher economic growth. “Interest rates are just one of those factors and so, both on positive and negative, interest rate cut over time that by itself will not lift the economy or lack of an interest rate cut is not holding the economy back. It’s one of the factors. It has some impact but it is not the only one,” he pointed out.
The central bank said it was comfortable with the current account deficit (CAD) even after it widened in the second quarter this fiscal.
“Current account deficit certainly has widened. It still is comfortable at 2.1 %. But of course the direction is something we will be watching carefully,” Rajan added.
The country’s CAD widened to 2.1% of GDP in the July-September quarter, higher than both the previous quarter and a year earlier.